A few weeks ago, I attended a recent Grant Thornton APAC Transfer Pricing Masterclass, and one of the case studies we worked through felt uncomfortably familiar. It was “just” a learning case on paper, but the facts mirrored what many multinationals are doing in real life: shifting operating footprints across ASEAN, redesigning supply chains, moving decision-making across jurisdictions, and layering digital platforms across countries—all while trying to keep costs down and customers satisfied.
The case involved a business under pressure from geopolitical tensions, tariffs, and supply chain fragility, prompting a rapid realignment of manufacturing and the introduction of new cross-border flows. In practice, this is exactly where transfer pricing becomes both a tool and a risk: it can help align outcomes with value creation, or it can expose a restructuring that looks clean on paper but becomes difficult to defend during an audit.
In this article, I want to share why restructuring and transfer pricing are inseparable, and how Philippine taxpayers can move forward as local transfer pricing continues to evolve toward international practice.
Restructuring is just the start: The chain reaction it creates
When businesses restructure, the first conversations are usually commercial: Where should we manufacture? Which entity should contract with customers? Can we centralise procurement? Can we shift to a limited-risk model? These are valid and necessary questions.
But restructuring sets off a chain reaction in tax and transfer pricing because it changes who does what, who owns what, and who bears what—the familiar FAR framework: functions performed, assets employed, and risks assumed.
In context, when a restructuring alters the characterisation of a local entity, there should be a corresponding shift in FAR, and profit allocation should reflect that shift. This is not merely theoretical. When a Philippine entity’s profitability declines after restructuring, the critical question is whether the underlying functions and risks truly changed, or whether only the profit moved.
In my experience, this is exactly where restructurings either hold or unravel under BIR scrutiny.
Transfer pricing issues rarely travel alone
Key point: restructuring decisions do not happen within a single tax framework.
One clear takeaway is that transfer pricing cannot be viewed in isolation. It must be assessed alongside customs, tariffs, and withholding tax considerations, as well as operational feasibility. A structure that works on paper but cannot be executed, or creates unintended exposures, will not hold in practice. If an entity is positioned as “limited risk” but continues to manage inventory, negotiate suppliers, and absorb business uncertainties, the disconnect becomes evident. That inconsistency is precisely what tax authorities tend to examine.
The heart of restructuring transfer pricing: substance, not labels
During restructurings, generally labels change faster than the actual business. Entities may be reclassified as distributors, manufacturers, or service providers under different models, but transfer pricing does not rely on labels alone. It is grounded in the conduct of business.
A reduction in profitability may be justified only if supported by a genuine shift in functions and risks. If the underlying activities remain the same, tax authorities may view the restructuring as lacking substance and adjust the transfer pricing outcomes accordingly.
From a practical standpoint, restructuring should be approached as a two-track exercise:
When these two tracks are aligned, transfer pricing positions become more defensible. When they diverge, restructuring becomes a potential risk area.
Global and Philippine perspective: restructuring under closer scrutiny
Globally, tax authorities are becoming more sophisticated in reviewing restructuring arrangements. The direction is consistent with international principles: profits should follow value creation, based on actual functions performed and control of risks.
At the same time, the very factors driving restructuring—tariffs, geopolitical shifts, supply chain disruptions, and digitalization—are also increasing the level of scrutiny. As a result, key questions inevitably arise: Who makes the critical decisions? Who bears the risks? And ultimately, who earns the returns?
As restructurings become more strategic, transfer pricing has effectively become an integrity test. It is no longer enough that a structure is documented: it must reflect how the business truly operates.
In the Philippine context, an entity that shows a significant decline in earnings after restructuring must be able to demonstrate that the change reflects a genuine shift in functions and risks. In this environment, documentation becomes crucial. Documentation prepared after the fact may appear as justification, while contemporaneous documentation better reflects governance and intent: and is far more defensible.
What a defensible restructuring looks like
Moving forward: preparing for a more international TP environment
Transfer pricing in the Philippines continues to move toward closer alignment with international standards. This means greater emphasis on economic substance, documentation quality, and defensibility.
We are also seeing broader global developments shaping transfer pricing practices, including increased focus on documentation, transparency, and dispute management.
For Philippine businesses, this evolving environment calls for a more proactive approach. In particular:
Business restructuring will continue not because tax rules require it, but because business realities demand it. Supply chains will evolve, markets will shift, and organizations will adapt.
The real question is whether transfer pricing can keep pace with these changes.
My key takeaway from the Masterclass is simple: when strategy moves faster than substance, transfer pricing becomes the most visible point of misalignment.
The objective, therefore, is not to avoid restructuring, but to approach it with discipline, ensuring that profit outcomes reflect real business activity, documentation supports the narrative, and governance mechanisms are in place.
As transfer pricing in the Philippines continues to align with international practice, those who invest early in substance, consistency, and documentation will be better positioned: not only to withstand scrutiny, but to implement restructuring with confidence.
Let's Talk TP is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 26 May 2026
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