Japanese Printer Manufacturer Transfer Pricing Study

Approach & Results

Client Profile

A world-renowned Japanese printer manufacturer, also known for microchip-processor and watch production, engaged McGuire Sponsel for a transfer pricing study. The Japanese parent company employs over 12,900 full-time staff across manufacturing, procurement, logistics, sales, marketing, and R&D. Their U.S. subsidiary, with 19 full-time employees, focuses on product distribution.

Process

Our Global Business team collaborated closely with our client’s CPA and finance departments in Japan and the U.S. to understand the operations and duty separation between entities. Our analysis focused on identifying risks assumed and assets applied by each entity, which is crucial for IRS compliance.

We conducted thorough research on industry trends, documenting current growth and future projections. This included analyzing driving factors and global developments affecting the industry.

The project faced several challenges, including language and cultural barriers and differences between Japanese GAAP (similar to IFRS) and U.S. GAAP. Our team adapted our communication and explanations to bridge these gaps effectively.

Project Results

After a comprehensive evaluation, our Global Business team determined the Transactional Net Margin Method as the most appropriate approach for assessing the profitability of the U.S. subsidiary’s distribution services.

Starting with 98 potential comparable companies, we refined our focus to 4 highly comparable firms. Using the Operating Profit Margin as the Profit Level Indicator, we established an interquartile range for the three-year weighted average between 1.96% and 5.16%, with a median of 3.31%.

The client’s actual operating profit margin fell within this range, confirming that their transfer pricing arrangement for distribution services complied with OECD guidelines and tax authorities in both Japan and the U.S. The entire process was completed within a 5-6 week timeframe, showcasing our efficiency in handling intricate cross-border tax matters.