Introduction
The OECD emphasizes aligning transfer pricing outcomes with value creation. Value Chain Analysis (VCA) plays a key role in determining how profits should be allocated among group entities based on their contribution.
What is VCA?
Mapping of functions, assets, and risks (FAR) across all entities in a multinational enterprise (MNE).
Identifies key value drivers and profit-generating activities.
Importance in OECD TP Framework
Central to BEPS Action 8–10.
Determines which entity should retain residual profits or bear losses.
Steps in Conducting VCA
Identify significant functions and economic contributions.
Evaluate the role of intangibles and capital.
Compare contractual terms with actual conduct.
Align TP methods with business substance.
Relevance in India
Value chain is a key focus in APA and audit proceedings.
Increasing scrutiny on DEMPE analysis in intangibles-heavy sectors.
Conclusion
Value Chain Analysis brings transparency and integrity to TP policies. It ensures that profit attribution mirrors real economic activity, a principle strongly reinforced by OECD and Indian tax authorities.
