On 24 June, Javier Enrique Salinas and Francisco Quílez, Managers at TPS by Auxadi, presented the most effective methodologies for business valuations. As a highly subjective area, business valuations are increasingly scrutinised by tax authorities, which continue to strengthen their oversight of transfer pricing policies applied by multinational groups.

Business valuation best practices

Francisco Quílez opened the session by introducing the three most widely used business valuation approaches: “static methods, dynamic methods and the market approach”. He then explained each of them in detail.

The static approach provides “a snapshot of the company at a specific point in time”, based on several valuation criteria, including book value, adjusted book value, liquidation value, and replacement value.

Within the dynamic approach, discounted cash flow (DCF) analysis plays a key role, although it presents “the challenge of accurately forecasting how the company will evolve over time”. Francisco Quílez also highlighted one of its core components: “company-specific projections”, which “are typically prepared over a period of between five and ten years”.

Referring to a ruling by Spain’s National Court, Francisco emphazised that “it is not enough to determine a price; it must be supported by a robust valuation, and the choice of valuation method matters”.

He concluded by explaining that the market approach is based on “applying multiples observed in comparable listed companies or similar completed transactions”.

Comparison and validation

Javier Enrique Salinas stressed the importance of “demonstrating that the transfer price is consistent with the price that would have been agreed between independent parties under comparable circumstances”.

He also discussed several examples of intangible assets: “These may include an internally developed brand, a customer portfolio or the know-how a company has built within a particular market”. According to Javier, these assets have value because “an independent party would have been willing to pay for their use“.

Using software licensing as an example, he explained that “the need for a valuation is clear”. The transfer of a software licence can be supported by “using the databases available within our department”, he added.

The importance of business valuations

The obligation to properly support business valuations was the central topic of the final webinar in TPS by Auxadi’s webinar series. Francisco Quílez closed the session with a key takeaway for multinational groups: “What makes the difference is not the formula applied, but the rigour and expertise behind every methodological decision”.

Throughout the webinar, Javier Enrique Salinas and Francisco Quílez shared valuable insights into business valuations, providing practical expertise in an increasingly complex environment shaped by heightened scrutiny from tax authorities.

Do you need to strengthen your transfer pricing documentation? TPS by Auxadi’s specialists bring more than 10 years of experience helping multinational groups optimize their transfer pricing policies, documentation and compliance. Contact our team to discuss your business needs.

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Author:

Auxadi Corporate