Ireland 
USA Transfer pricing post-Brexit: a simpler solution for brokerage firms
In the wake of Brexit, many British headquartered brokerage groups were required to restructure their businesses and transfer pricing arrangements - with mixed results. In this article, we review the outcomes of those changes and explain how to avoid the pitfalls with our simplified co-entrepreneur model.
The Brexit challenges
Financial services (FS) trading entities had a real challenge with Brexit. In order to carry on MiFID II licensed activities within the EU, new EU based entities were required. The core of the business, however, be it the intellectual property, the trading systems or group strategy, often remained within the UK.
In the immediate wake of Brexit, the transfer pricing results were messy, and there were many new cross border transactions. The complications arising from having the key function of holding contracts and/or the right to execute trades held within an EU based entity, but all other entrepreneurial functions within the UK, have often led to challenges by tax authorities. Often, group entities have been vulnerable to double taxation and, in order to deal with this, a time consuming and costly Mutual Agreement Procedure has been required.
As if all this was not enough, the challenges of implementing these new arrangements were further complicated by capital requirements for specific licensed activities.
Our perspective
At Evelyn Partners, our experienced Transfer Pricing team is made up of tax accountants, international tax lawyers and economists. We have been supporting clients through these recent changes and have observed a few common themes:
- Two or more tax authorities often claim the group entity in their country is the entrepreneur;
- Advisers often provide a transactional approach requiring multiple expensive benchmarking sets with no consideration of implementation and capital requirements; and
- Most fundamentally, when modelling a solution, there is often a lack of recognition that the economics have changed within a group.
Our FS strategy is led by a team who have worked in the industry, understand the complexities involved and, most importantly, want the optimal outcome for your business. We recognise that the traditional service cross charge model just does not work under these circumstances. It is also messy and hard to implement.
Our “co-entrepreneur” transfer pricing model provides a solution to this, with a methodology that is accepted by the OECD, HMRC and the EU tax authorities.
Our model is robust, easy to implement and deals with the capital requirements. It is also easy to amend without unnecessary follow up fees based on our entity classification approach. We are committed to a one-time solution that will make Brexit headaches and regulatory challenges a thing of the past.
Contact
If your business was impacted by Brexit and you would like to speak to one of our team, please contact any of our TP team listed, or your usual Evelyn Partners contact.
Approval code: NTAJ14062341
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.
Tax legislation
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.
