Business restructuring in transfer pricing refers to the cross-border reorganisation of functions, assets, and risks within a multinational enterprise group, and the question of whether adequate arm’s length compensation must be paid to the transferring entity for what it surrenders. The legal foundation lies in Article 9 of the OECD Model Tax Convention and the arm’s length standard: when a restructuring transfers valuable functions or profit potential from one group member to another, the transaction must be priced as if conducted between independent parties. Disputes arise because restructurings often convert previously full-risk distributors or manufacturers into stripped, limited-risk entities, with residual profits migrating to a principal company in a low-tax jurisdiction.

In practice, tax authorities challenge whether the transferring entity received adequate compensation for terminating or curtailing profitable arrangements, transferring intangibles, or relinquishing customer relationships and market position. The cases in this category illustrate the full range: a German automotive supplier shifting manufacturing to a Bosnian contract manufacturer, a Dutch tobacco group restructuring intercompany fee arrangements generating billions in taxable income, a Portuguese distributor losing its distribution contracts to a sister company without receiving exit compensation, and a French permanent establishment converting from a full manufacturer to a contract bottler. Taxpayers typically argue that no valuable asset was transferred, that arrangements were terminated under commercial necessity, or that the restructured entity retains sufficient residual risk to justify limited remuneration.

The governing framework is Chapter IX of the OECD Transfer Pricing Guidelines, introduced in 2010 and updated in subsequent editions, which addresses the arm’s length compensation for the restructuring itself (paras 9.1–9.160) and the remuneration of the restructured operations post-restructuring. Key concepts include the recognition of the actual transaction, the identification of transferred “something of value,” the application of the most appropriate method for valuing exit payments, and the use of realistic alternatives available to each party. Article 9(1) of the OECD Model provides the treaty basis for primary adjustments, while domestic provisions such as Germany’s § 1 AStG and equivalent national statutes operationalise the obligation.

Courts and practitioners focus on whether an independent party in comparable circumstances would have accepted the restructuring without compensation. Central evidentiary questions include the value of foregone profit streams, whether contracts were genuinely terminated or merely reassigned, whether goodwill or going-concern value was transferred, and whether the post-restructuring remuneration of the remaining entity adequately rewards its retained functions and risks. Benchmarking analyses, discounted cash flow valuations of lost profit potential, and comparisons with third-party termination payments feature prominently.

These cases demonstrate that business restructuring remains one of the highest-stakes areas in transfer pricing, combining valuation complexity with fundamental questions about the recognition of intragroup arrangements.