There is much discussion these days about value chain analysis (VCA). The concept of a VCA has been around for decades, but only recently has its use in the tax world become more commonplace. Although the Organisation for Economic Co-operation and Development (OECD) has not explicitly referenced a VCA, the approach is proving itself useful in meeting requirements set forth in its Transfer Pricing Guidelines.
In fact, tax authorities around the globe to varying degrees have begun to look to a VCA as part of the process to understand “the big picture” of the whole value chain of a business. In many ways, it provides necessary insights beyond what one would get from mere functional analysis as a result of its enhanced focus on people and specific activities. Indeed, it has become a more commonplace part of transfer pricing documentation as well as in the area of advanced pricing agreements (APAs) and controversy.
Notwithstanding the VCA’s recently raised profile, many people don’t fully understand what a VCA is or the many ways it has been, and continues to be, useful to tax practitioners.
In this paper, the authors from KPMG LLP’s (KPMG) Transfer Pricing and Value Chain Management practices:
- Consider what a VCA is
- Provide an overview as to how a VCA is performed
- Discuss some practical use cases to demonstrate how VCAs are already being used by taxpayers.