The Issue Behind 'Almost All' Transfer Pricing Cases: Ex Ante or Ex Post Basis

GILTI Conscience

In this episode of the “GILTI Conscience” podcast, Bram Isgur, principal at Keystone Strategy, joins our hosts Nate Carden and David Farhat to talk about transfer pricing on an ex ante and ex post basis. They discuss the use cases for each method, how these methods differ across industries and why it’s important to think about the bigger picture in preparing for unimaginable events and changes.

So, should you take an ex ante approach, where you look forward and try to figure out your pricing for events that have not yet occurred? Or do you take an ex post approach, where you wait to see what happens and work your way backward? Because there are pros and cons to each, it’s difficult to give a definitive answer. However, Bram has some advice for companies grappling with these choices.

For example, many companies in the tech space either boom or bust, which often leads to tax controversy years later. On the ex ante front, when you’re undertaking a transaction that involves risk, you have to write down what the risks entail — you can't rely solely on the statements put together by people who believed the company would succeed. In particular, you should have someone from the business side and someone from the tax side looking at your documentation. The ex ante approach allows you to talk through your strategy before risks come to pass.

On the ex post side, it’s helpful to take a look at businesses that already failed. Instead of wondering if your company’s success was inevitable, take a look at other companies that existed around the same time and would have been viewed as competitors. Examine their model and look at what happened to them. The ex post approach is often more convenient and accurate in certain cases.

No matter which approach you take, it’s vital to assess your situation, determine what’s best for your business and stick to a plan of action. There are no perfect solutions, but consistency gives you a better position to deal with possible tax controversy down the road.

💡 Featured Guest 💡

Name: Bram Isgur

What he does: Bram is a Principal at Keystone Strategy, an economics consulting firm for Fortune Global 500 companies, top law firms, and government agencies. An economist, Bram advises law firms, multinational companies, and banks on diverse issues, including tax and regulatory compliance, transfer pricing controversy, antitrust, and securities law.

Bram’s specialty areas include negotiation of multilateral Advance Pricing Agreements with the IRS and other tax authorities, transfer pricing relating to financial transactions, risk, banking and global dealing, and economic analysis to support Regulation W compliance.

Organization: Keystone Strategy

Words of wisdom: “Instead of thinking about this particular time in this particular instance, [you] should think more about long term industry trends. It's absolutely true that like there's going to be another black swan event and I don't know what it will be and nobody else knows what it will be either.”

Connect: LinkedIn

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GILTI Conscience is a podcast by Skadden, Arps, Slate, Meagher & Flom LLP, and Affiliates. Skadden’s tax team is recognized globally for providing clients with creative and innovative solutions to their most pressing transactional, planning, and controversy challenges. This podcast is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. This podcast is considered advertising under applicable state laws.