Transfer Pricing in Litigation Funding: Remunerating Cross-Border Value-Creating Functions

Abstract

Litigation funding is a useful transfer pricing case study because the asset class is illiquid, long-dated and dependent on legal, procedural, settlement and enforcement outcomes, while the business model often blends capital provision, fund sponsorship, asset management and residual upside participation. This creates complexity where functions are split across jurisdictions. A platform may earn three main income streams: capital return, management fee income and performance or residual return, supported by functions such as capital formation, origination, legal underwriting, governance, monitoring, settlement and enforcement. This article develops a framework for distinguishing capital return, management fee income and performance or residual return in cross-border litigation funding structures. It maps the functions that generate each stream and evaluates when the CUP, the TNMM or cost-plus or a revenue- or profit-based transactional profit split may be appropriate. Its central proposition is that residual returns may need to be allocated partly by reference to non-routine investment-management and governance contributions rather than capital alone.