Plain English
Converting a full-risk distributor into a commissionaire, moving IP, or centralising procurement all move profit potential from one country to another. The question is whether an independent party would have accepted that change without being paid — and if not, how much.
Technical definition
Chapter IX addresses the arm's length treatment of cross-border reorganisations of commercial or financial relations between associated enterprises, including the allocation of risks, compensation for the restructuring itself, and remuneration of post-restructuring controlled transactions.
Why it matters
Exit charges are among the largest single transfer pricing assessments issued, and restructurings are highly visible in CbC data and statutory accounts.
How it works in practice
- 01Delineate the pre- and post-restructuring arrangements, including risks and their control.
- 02Identify what of value transferred: intangibles, going concern, ongoing rights, or nothing.
- 03Consider the options realistically available to each party.
- 04Determine any compensation for the transfer or for termination of an arrangement.
- 05Price the post-restructuring model on its own terms.
Worked example
Distributor conversion
A distributor with a 12% historic margin and an established customer base converts to limited risk at 3%. The customer relationships and market intangibles it built continue to be exploited by the principal. Whether an exit payment is due turns on whether something of value transferred and whether an independent party in the distributor's position, with no contractual protection, could have refused.
Common mistakes
- Documenting the restructuring after it has happened.
- Assuming no exit charge because nothing was legally sold.
- Failing to update intercompany agreements, benchmarks and systems on the same date.
Audit red flags
- Sharp margin drop in a jurisdiction with no corresponding functional change.
- Restructuring effective on a date not reflected in any contemporaneous document.
Documentation & data
Documents to hold
- Pre and post functional analysis.
- Business case and board approvals showing commercial rationale.
- Valuation of anything transferred.
- New intercompany agreements effective from the conversion date.
Data you need
- Historic profitability by function.
- Customer and contract data.
- Forecasts underpinning the business case.
Who owns this internally: Group tax alongside the business sponsor and legal.
Jurisdiction notes
- OECD
- Chapter IX covers restructurings; there is no presumption that compensation is always due, nor that it never is.
- Germany
- Domestic transfer of functions rules apply a transfer package approach that can produce higher exit charges than a pure OECD analysis.
Notes by role
CFOs & finance leaders
Involve tax before the operating model decision is announced. After announcement the commercial rationale narrative is much harder to build.
Frequently asked
- Is an exit charge always required?
- No. It depends on whether something of value transferred or a valuable arrangement was terminated in circumstances where an independent party would have been compensated.
Sources & status
- Primary source
OECD Transfer Pricing Guidelines, Chapter IX
OECD, 2022
Reference material only, not advice on a specific fact pattern. Reviewed 2026-06-30.
Careers
How this shows up in the job
Project work with real deadlines and board exposure. Good route out of pure compliance.
Careers in transfer pricing