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Valuation of Shares
Introduction Tax legislation may require that share transfers within a multinational group be conducted at arm’s length, i.e. an inter-company share transfer should be made at the same price and terms as it would have been had the parties not been related to each other. This reference leaves room for interpretation and requires judgement and explanation when choosing valuation methods or making valuation assumptions. Making sure that the transfer price complies with local regulations can save costs and time. Independent valuation reports help in providing backing and support where a share transfer is planned. Importantly, Transfer Pricing Associates’ unique approach to valuation is based on the premise that any intra-group valuation study must be performed in an integrated way with due regard to core valuations principles as well as specific transfer pricing and tax implications in each jurisdiction. Types of Transactions A share valuation in an intra-group share transfer transaction may be useful or legally required when the share transfer is subject to capital gains tax or when the transaction is subject to transfer tax or capital duties. Valuation Methods Tax legislation in most jurisdictions generally requires that share transfers be conducted at arm’s length. This leaves room for interpretation and requires judgement and explanation when choosing valuation methods or making valuation assumptions. There are varying methods to value shares, including: • Stock market price: one of the preferred methods since the value is determined by the market. However, the market price should only be used if it is fairly representative of an active and broad market that is not influenced by unusual factors such as irregular trading or a thin market; • Income method: this method determines value by estimating future cash flows and discounting them to give a present...