KPMG report: Transfer pricing implications of automotive innovation

Automotive industry undergoing dramatic change, as electric and hybrid powertrains are rapidly expanding their share of the market

Automotive industry undergoing dramatic change

The automotive industry is undergoing dramatic change, as electric and hybrid powertrains are rapidly expanding their share of the market. In a race to be first to market with the latest innovations, traditional original equipment manufacturers are partnering with technology firms to create advanced driving systems, and joint ventures are increasingly being announced as tools for companies to share capabilities as well as investment risks. Consumers are expecting more online shopping options, and new technologies and market entrants could reshape the industry. At the same time, supply chains have experienced unprecedented disruptions. All this being said, this industry is experiencing increased investments in the United States, especially given the passage of H.R. 5376 (commonly called the “Inflation Reduction Act” (IRA)).

Each of these industry trends could cause an automotive company to reconsider its transfer pricing policies. Moving forward, companies may face challenges in:

  • Reevaluating intangible property ownership and development
  • Reassessing appropriate methods and metrics for determining arm’s-length prices
  • Determining which relationships are truly “controlled” for tax purposes
  • Determining and substantiating eligibility for tax credits
  • Anticipating the potential ramifications of third-party agreements on comparable intercompany transactions

Read a May 2023 report* [PDF 572 KB] prepared KPMG LLP tax professionals that examines the transfer pricing implications of trends in the automotive industry

*This article originally appeared in Tax Notes International (22 May 2023) and is provided with permission.



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