Value of an entity within the digital economy: considerations for distribution businesses
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Value of an entity within the digital economy: considerations for distribution businesses

Sponsored by

Digital solutions have exponentially impacted the global economy since COVID-19

Carlos Pérez Gómez of HLB MAAT Asesores (HLB Mexico) and Eugenio Tarabini of SP&P (HLB Italy) consider how the digital economy would impact multinational groups involved in distribution activities.

Many multinational groups involved in distribution activities are facing several transfer pricing (TP) questions in a digital transition context. Global supply chains are becoming more digitalised due to a more affordable IT infrastructure, easier access to IT service providers and market-specific information directly collected by data providers, as well as following market trends/needs.

More digitalised processes potentially lead to the creation of new valuable intangibles and IPs which may disrupt the traditional value chain. Distribution businesses (particularly retailers) are facing an increased use of apps, digital storefronts and artificial intelligence (AI) which are expected to increase the entire business profitability. 

Such digital solutions have exponentially impacted the global economy since the COVID-19 crisis and, therefore, represent unique intangibles with a new landscape in competitiveness for multinational groups (for instance, the implementation of an AI systems for inventory management should allow and improve efficiency in the supplier relationships, logistics and shipping processes). 

In this context, the question is which group entity represents the economic owner of these new intangibles and to what extent such changes would impact the TP policies applied before the envisaged disruption?

Many active multinational groups in the distribution business were generally organised with several distributors located in key local markets, performing routine functions as logistics, sales and marketing, managing relationships with customers as well as offering customer services, in many cases with reasonable arm’s-length structures, validated by distribution comparables and the transactional net margin method (TNMM) approach.

As the ‘ordinary’ operating models are increasingly moving from offline to online/omnichannel dimensions, the traditional sales functions are assuming less importance if compared to other functions, such as data collection and processing. For example, data gathered through websites results in a list of user’s behaviours which help the players to understand the market, determine consumer preferences and, therefore, bringing value with new intangibles (digital solutions, know-how and recognised IPs).

Through the data analysis, a digitalised model always has the potential to differentiate prices using data on product supply and consumer demand, where consumer demand for a given product may be assessed by analysing users’ purchase behaviours. While a digitalised business may differentiate prices at the individual level, traditional business could only differentiate prices very roughly, for example, by client importance through the offering of specific discounts for different client groups.

In this context, the risk allocation innovation may consist of delineating multinational group decision-making functions related to pricing/product positioning in the jurisdiction where the IT intelligence, data collection and analysis are located, potentially lowering the functional profile of traditional distribution entities.

Customer relations

Furthermore, the role played by distributors in previously implemented models was key to create and maintain group traditional marketing intangibles and IPs by performing customer relationship activities. In digitalised business, such physical presence roles may be downsized as the traditional marketing functions will be less required.

The customer relationship activities of traditional distributors would consist of onsite personnel support, for example, in changing orders or any claim. Such support may be provided electronically by a digitalised business in the form of online chat sessions through a digital platform owned and managed by the parent company.

Independently, the discussion arises in the cases where the business and commercial relationship is solid and created by the local distributor. That said, it is important to quantify the effects of the technological innovations incorporated in the business model as they could represent significant reduction of costs and expenses or to enhance the position of the entity before the market by increasing the sales or by creating relations with new clients.

It is important to keep in mind that the digitalisation of the economy started several years ago and that the implementation of new systems as well as the electronic commerce has gradually evolved and impacted the way the multinational groups run their business and, in some cases, those implementations could be understood as part of the previous business models.

In Italy as well as in Mexico, the tax authorities are deeply involved in understanding the challenges that the digitalisation of the economy could impact in the TP model for entities such as distributors, considering their economic relevance in the Mexican economy, as a capital-importer country.

Even though it is not clear how the integration of the digital economy will have in each of the group’s subsidiaries, and TP methods accuracy, it is a fact that companies should be aware of mapping the value chain of the group, and take into account any intangibles that the local entities may be creating or maintaining, and at the same time incorporating in the equation the gradual involvement of the digital economy in the distribution industry.

With taxable bases being threatened by the rapid expanding of digital economic activity, the Italian government recently enacted the digital services tax (DST) with the only purpose to tax large multinationals on payments related to digital business models. This type of unilateral measures makes the global tax environment more fragmented and uncertain, increasing the need for multilateral agreements based on new taxing principles (as the OECD pillar one project).

New landscape

While analysing business moving to digitalisation, attention should be made on the new landscape and transition that groups ought to face to remap their functions, assets and risks, and entities responsible thereof, and to understand the interaction that the new structure will have with the well-established departments and the inevitable creation of new intangibles and IP related to digitalisation of the economy.

It will be critical therefore to understand the facts and circumstances by way of a proper conceptual and factual functional analysis, focusing on the activities performed, the risks assumed, and the assets used by the new digital roles. 

Multinational groups should evaluate if the technological implementation significantly changes the business and TP model to determine if the actual TP methodologies and policies should be reviewed and updated considering value creation factor.

For clarification and additional information please contact the authors below.


Carlos Pérez Gómez

Partner, HLB MAAT Asesores (HLB Mexico)


Eugenio Tarabini

Senior manager, SP&P (HLB Italy)

E :



more across site & bottom lb ros

More from across our site

Yusuf Akhmadi of Indonesia’s Directorate General of Taxation reports on the country’s latest domestic and cross-border initiatives to clamp down on tax evasion
The new rate is a blow to Samsung, while two law firms have made significant tax hires into their respective Washington DC offices
Rema Serafi, KPMG’s first-ever female vice chair for tax, talks about breaking the mould in an exclusive interview with ITR
The metal multinational’s victory, in a case worth $12 million, continues the trend of companies coming out on top against India’s revenue department
Guy Bud and Matthew Greene from litigation firm Stewarts review a dispute on tiered partnerships, which raises questions on corporation tax and partnership law
The stagnating pay and tax bonuses cap follow slashed payouts for the deals team and business consolidation in the last month
A greater UN role has been secured after disagreements between developed and developing countries over the OECD’s influence in global tax reform
The US-based firm picks up investment fund specialist Ceinwen Rees, while Ireland nearly doubles its corporation tax receipts in three years
The order comes amid controversy over another of David Collard’s companies’ tax and TP affairs
NASSCOM, which represents over 3,000 Indian companies, has argued for the removal of the segmentation rule