TRANSFER
PRICING

TRANSFER
PRICING

AHG offers Transfer Pricing Services as part of our commitment to provide premium quality services to its client in UAE, and Egypt. Transfer pricing involves the assignment of costs to transactions for goods and services between related parties. Transfer pricing is typically used for purposes of financial reporting and reporting income to taxing authorities. Transfer Pricing Services is available in our offices both in Dubai and Cairo

Transfer pricing is the setting of the price for goods and services sold between controlled (or elated) legal entities within an enterprise. For example, if a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is the transfer price.
Transfer price, as aforesaid, refers to the value attached to transfer of goods, services, and technology between related entities such as parent and subsidiary corporations and also between the parties which are controlled by a common entity
Regulations on transfer pricing ensure the fairness and accuracy of transfer pricing among related entities. Regulations enforce an arm’s length transaction rule that states that companies must establish pricing based on similar transactions done between unrelated parties.

The “arm’s-length principle” of transfer pricing states that the amount charged by one related party to another for a given
product must be the same as if the parties were not related. An arm’s-length price for a transaction is therefore what the price of that transaction would be on the open market

A transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm’s length transaction is to ensure that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party.

In taxation and accounting, transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control.
The general economic transfer price rule is that the minimum must be greater than or equal to the marginal cost of the selling division. In economics and business management, a marginal cost is equal to the total new expense incurred from the creation of one additional unit.

Types of Transfer– 5 Major Types:

  • Production Transfers 
  • Replacement Transfers
  • Shift Transfers
  • Remedial Transfers
  • Versatility Transfer

Transfers and promotions are the two important ways of personnel adjustments. When employees are transferred without any promotion or demotion, it is simply a transfer.

Transfer pricing is a pricing arrangement for a transaction between related legal entities within a multinational enterprise. Inter-company transactions may include the transfer of tangible goods, services, intangibles and loans
Transfer pricing represents the price paid from one company to another for a product or service when both are owned and report to the same parent company. Transfer pricing policy dictates the approach taken by the two companies when determining the price for the product or service.
The performance evaluation objective of transfer pricing refers to the use of intercompany transfer prices to provide performance measures (sales, costs, income) that allow both parties to the intercompany transaction (buyer and the seller) to be fairly evaluated.

Transfer Price: When one entity purchases goods from another entity under the same ownership, a
Sales price: is charged, just as it would be to an outside customer. This price is called the transfer price. In this case, the sale is made to another entity as part of the production process rather than to the end-user

Quick Reference: Transfer prices set by marginal cost pricing. When there is no market for the goods and services that are bought and sold between the divisions of an organization, the transfer price should be the marginal cost, which is normally assumed to be short-term variable cost.

Arm’s Length Price can be computed by the following methods;

  • Comparable Uncontrolled Price Method
  • Resale Price Method
  • Cost Plus Method
  • Profit Split Method
  • Transaction Net Margin Method

Such other methods as may be prescribed by the board.

With fees, commissions, and differences in exchange rates, the whole process can be rather maddening. International transfer pricing, or the process by which companies transfer money and goods between subsidiaries, is thus an important part of international business.
  • Profit Split Method

Assess the contribution made by each party taking into consideration the functions, responsibility, assets utilized and external market data. Divide the combined net profit in the ratio of the contribution as above determined. Take the profit to arrive at the arm’s length price (ALP).