With globalization in effect, there is a significant rise in the number of multinational companies. It's a fact that around 60% of world trade proceeds within multinational enterprises. Hence, transfer pricing has become an interest not only for tax administrators but also for economists, NGOs, business persons, and politicians who are waking up to the call. Here in this article, we are going to learn about all the risk factors and benefits of Transfer Pricing.
It's much of people's interest knowing who is paying tax and who is not when business transactions between different arms of multinationals take place.
It's an evident case that through transfer pricing companies can deprive tax authorities in different jurisdictions of their fair share of taxes. No matter if we consider a wealthy, emerging or poor country nobody wants suffering from its tax base because of transfer pricing.
“Transfer price” means the price charged for transfer for goods or services. However, as far as tax is concerned, in common parlance, “Transfer pricing: is considered as price charges for transfer of goods or service between associate entities.
For example: Let's assume a UK computer manufacturer group buys the computer microchips from its own subsidiary in India. Now, the amount the parent UK company pays to its subsidiary in India for the microchips is the amount of profit the subsidiary unit can represent and need to pay tax for that.
The price charged by a subsidiary company from its holding company can be arbitrary and dictated and such arrangement may result in avoidance or reduction of tax liability. Accordingly, provisions of “Transfer pricing” given under the Income Tax Act can be used to actual uncontrolled prices.
Transfer Pricing is nothing but the value attached to goods or services transferred in between related parties. More precisely speaking, it is the price paid for products and services transferred from a unit to other units of an organization or transfer of goods or services between associate/related enterprises.
While transfer pricing has several objectives here, we are going to discuss the two most prominent among them.
Legal entities under a single corporation can have several branches where the companies which are wholly or the major share can be owned by the parent corporation. There are many jurisdictions who consider business entities within a common control if they share family members on the list of their board of directors.
Transfer pricing plays an instrumental role to allocate profit to a multinational corporation when it comes to clear tax liabilities in different countries where they do business. It basically allows setting the price among divisions inside an enterprise.
Transfer pricing offers tax advantages to multinational companies but often or not regulatory authorities tend to use it for tax avoidance.
Furthermore, Through transfer pricing companies can ensure profits for goods and services in different countries which have a lower tax rate. Organization for Economic Cooperation and Development (OECD) regulates international tax laws.
In the case of international goods and service exchanges where the transfer of service and goods takes place from one country to another through an interrelated company, the transaction can allow the company to avoid tariffs on the exchange.
Therefore, principles of transfer pricing are used to determine “Arm’s length price” for the transaction that took place between associate entities so that any avoidance or reduction of tax liability can be mitigated. Under transfer pricing, various principles are there to determine “Arm’s Length price” considering transaction took place between independent parties.
现在，您已经了解了什么是转让定价及其运作方式。接下来，我们来探讨一下转让定价的相关风险与收益。
因此，“转让定价”条款有助于避免此类情况的发生。
尽管转让定价能为企业带来一定的收益，但同时也伴随着特定的风险因素。请参阅下文以深入了解：
无论企业规模大小，转让定价都已成为许多企业面临的国际税务问题。您可以在确保业务符合全球法规的前提下，利用转让定价来削减成本。
审查您的转让定价策略和文档，并结合转让定价的风险与收益进行评估，对于维护组织透明度至关重要。
尽管我们已经讨论了转让定价的大部分基本风险与收益，但仍有许多内容超出了本文的讨论范围。
