Special purpose vehicles (SPVs) are a cornerstone of modern corporate structuring. They serve a wide range of legitimate business, financial, and regulatory purposes – from facilitating divestments and isolating risk to enabling access to funding and meeting tax or regulatory authorities’ requirements. Yet, despite their ubiquity and utility, SPVs present a unique and often underappreciated challenge in the realm of transfer pricing (TP).
At the heart of this challenge lies a fundamental paradox: while SPVs are common, they exist predominantly within international groups. Accordingly, they may seem inherently artificial constructs, mainly as they are designed as pure-play entities (i.e., single-purpose and sometimes even single-purpose and single-asset) and have correspondingly streamlined substance utilising the group’s support where economically feasible. As such, they represent the embodiment of pursuit of economies of scale and scope that modern economies require.
TP, however, is grounded in the arm’s-length principle, which tries to replicate in transactions between related parties the conditions of transactions between independent, economically rational entities, even though such a party would likely never exist in the same form. This leads to tension, since independent entities are rarely single-purpose/single-asset as they diversify risks in the long term, and very often they rely on own-substance.
This raises several questions; in particular, whether an entity with very limited resources can meet the criteria to be treated as an ‘entrepreneur’ for TP purposes and what minimum resources does this type of vehicle require in order to be attributed the residual profit/loss that comes with the assumption of risks from a certain activity.
The authors do not claim to have all the answers to these fundamental questions. Instead, this article aims to highlight the key considerations and thought processes involved that taxpayers (and tax authorities) will have to go through when dealing with SPVs.
The inherent tension
This paradox introduces a structural weakness in TP analysis involving SPVs. Unlike operating companies, SPVs often have very limited resources, with no employees.
Perhaps the most difficult issue concerns the accurate delineation of the transaction. To understand the problem, it helps to distinguish two categories of SPVs:
Those at the extreme end of the substance-light spectrum, whose administrators might even lack the bandwidth to secure qualifications and minimum decision-making skills typical of the vehicle’s activity and sector; and
Those that have some limited dedicated resource but with sufficient experience and knowledge to make key decisions.
Understanding this spectrum requires some in-depth industry knowledge, especially as there are sectors where the decisions can be managed by a shared resources/board meeting infrequently and/or when need arises.
One of the most common decisions SPVs can make consists of subcontracting a large part of the day-to-day activity to third parties or related entities. In the first case, it is very difficult for the SPV to be considered an entrepreneur and for a large part of the residual profit to be attributed to it due to its limited contribution in terms of functions and risks, although its contribution would have to be analysed in terms of the assets contributed and their relevance within the value chain of the group and the industry.
It is in this first case that the debate on the possible non-recognition for TP purposes of the operation arises in all its splendour, under the terms of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD Guidelines). It should be remembered, however, that the guidelines only recommend using this alternative in exceptional circumstances and provided that the operation lacks economic rationality and cannot be valued.
The above question also leads us to deliberate whether an anti-abuse rule should be applied, mainly on a domestic basis, and how this type of rule interacts with TP rules. A country-by-country analysis or at least distinguishing between countries based on civil law and common law systems would be necessary.
In the second case, depending on the facts and circumstances (as is always the case when talking about TP), there is a point to be made that nothing would prevent the SPV from having the status of entrepreneur if it performs relevant functions and adopts the main decisions that allow it to have control over the main risks and has sufficient financial capacity to assume those risks in line with Chapter I of the OECD Guidelines.
The main question that arises in this second case concerns valuation; namely, how to distribute the profit among the participating group entities and, in particular, how should the SPV be remunerated? This question, which is usually difficult to resolve, finds an immediate solution when there are internal comparables that are very close in time. That situation is relatively frequent since in certain sectors – such as finance, renewable energies, or construction and real estate – there is an active market for the sale and use of this type of vehicle or related services between independent entities.
Other SPV-related issues
There is also the issue of capital structure and financial guarantees. SPVs are typically thinly capitalised and rely heavily on parental or third-party guarantees. Determining the arm’s-length nature of such support – particularly, implicit guarantees – is notoriously difficult, even between fully fledged companies. The OECD Guidelines offer some direction, but practical application remains challenging, especially given the limited comparable data available on some types of transactions, such as performance guarantees.
A further challenge is the question of people and decision making. TP requires us to identify (and document) who controls the risks and performs the key functions. It is common to find vehicle administrators who also have the status of employees or administrators of other entities in the group, which makes it difficult to determine on whose behalf they carry out their activity, which can lead to confusion. It is, therefore, advisable for international groups to make an evidentiary effort to clearly delimit in what capacity the administrator acts.
Finally, in some cases, there may be difficulties in finding comparable transactions. This would make it difficult to apply traditional TP methods. However, once the SPV has been created, it is quite frequent in some industries to find an active market of buyers and sellers of these entities. Furthermore, buyers very often continue using these vehicles because of business, financial, and regulatory reasons, thus turning their operations into good references of the conditions that independent parties may set in the market.
The life cycle challenge: TP as a repeating exercise
Another layer of complexity arises from the life cycle of an SPV. Unlike a typical operating company, an SPV’s TP profile is not static. It evolves over time, and each phase of the SPV’s life may trigger a new TP analysis.
At inception, the SPV may receive capital, assets, or rights from related parties. These transfers must be priced appropriately, often in the absence of clear market benchmarks.
During operation, the SPV may engage in financing, licensing, or holding activities. Each of these requires ongoing TP monitoring, particularly if the SPV’s role or risk profile changes.
At exit or liquidation, assets may be sold or transferred, and guarantees may be unwound. These events can trigger significant TP implications, especially if valuations have changed or if the SPV has accrued value over time.
This means that TP analysis must be repeated and refreshed at multiple points.
Before the beginning: TP in the pre-SPV phase
Perhaps the most overlooked aspect of SPV-related TP is what happens before the SPV even exists. Often, related parties engage in planning, negotiation, and structuring activities that lay the groundwork for the SPV’s creation. These pre-formation activities can have significant TP implications.
For example, if a parent company develops an investment strategy and then transfers it to an SPV, what is the value of that strategy? Should it be compensated? If so, how? Similarly, if a group of investors agrees to fund an SPV under certain terms, are those terms reflective of what independent parties would agree to in the absence of a legal entity?
These questions are difficult to answer with certainty as tax authorities can always point out that they stretch the arm’s-length principle to its limits. We are asked to imagine what independent parties would do in a situation where they are not yet parties and where the entity in question does not yet exist. This is not just a technical challenge – it is a conceptual one.
Business income v capital gain
Another issue that arises in the sale of this type of vehicle is the qualification of the income. In principle, the sale of shares in an SPV should be classified as a capital gain, while the isolated transfer of any of its assets would be considered a business profit.
However, on occasions the tax authorities have considered that transactions prior to the transfer of shares in an SPV, such as the provision of services by another related entity of the group, were not valued in accordance with the arm’s-length principle. In these cases, adjustments have been made that use the value of the sale of the shares as a reference to value the previous transactions. After carrying out the primary adjustment at the provider’s headquarters and the corresponding correlative adjustment at the SPV’s headquarters, through the secondary adjustment that increases the value of the lender's stake in the SPV, there is a decrease in the capital gain, leading, in practice, to a change in the income rating.
Although each case must be analysed in light of the particular facts and circumstances, it is worth considering whether the amount of the consideration in the transfer is an adequate comparable to assess the previous provision of services. Think, for example, of markets with a certain speculative component in which the date of the sale is relevant because sales on different dates that are not too distant in time can lead to different results in terms of profits or losses.
Let us consider an example: entity A owns 100% of the shares in SPV B and provides services to the SPV until January 1 2025. In January, the sale of the shares would have resulted in an income of 1,000 units, while on June 15 2025, as a result of excess supply and changes in the sector’s regulations, the price would have been reduced to 600 monetary units. It seems clear that the 400 monetary units of difference should not be attributed to the provision of services carried out by entity A but to the entity that performs the sales functions, assumes the risks of the same, and is the owner of the shares.
Conclusion: a call for pragmatism and transparency
TP in the context of SPVs is not just a technical exercise as it requires judgement, documentation, and defensibility. Given the inherent limitations of applying the arm’s-length principle to these entities, tax professionals must adopt a pragmatic and transparent approach to avoid the current disputes with tax administrations.
This means the following:
Accurately delineating the transaction that involves SPVs, ensuring that vehicles have sufficient resources necessary for decision making, in line with third-party behaviour and industry practice.
Acknowledging the limitations of comparables and methods, and sense-checking the available data; in particular, through triangulation. Paragraph 2.12 of the 2022 edition of the OECD Guidelines states that “for difficult cases, where no one approach is conclusive, a flexible approach would allow the evidence of various methods to be used in conjunction”.
Engaging with tax authorities proactively where uncertainty remains, if necessary or cost effective.
Documenting assumptions and rationales clearly and at all points, especially given the number of SPVs and how quickly their business can evolve.
On a related note, revisiting TP positions throughout the SPV’s life cycle.
The prevalence of SPVs in modern economies reflects the benefits they offer in the market. Accordingly, they are here to stay, despite the challenges they create in terms of the arm’s-length principle.
As such, the TP community must continue to refine its tools and frameworks to deal with their unique challenges. Only then can we ensure that the arm’s-length principle remains robust, even in the most unusual of contexts.
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