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Transfer Pricing

What is the OECD?

The Organisation for Economic Co-operation and Development (OECD) is a group of 34 member countries that discuss and develop economic and social policy. OECD members are democratic countries that support free-market economies, theOECD was founded in 1961 to stimulate economic progress and world trade.

What is BEPS?

Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. Developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately. BEPS practices cost countries USD 100-240 billion in lost revenue annually. Working together within OECD/G20 Inclusive Framework on BEPS, over 135 countries and jurisdictions are collaborating on the implementation of 15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

What do you mean by Transfer Pricing?

Transfer pricing is the setting of the price for goods and services sold between controlled (or related) 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.

 

What is the purpose of Transfer Pricing?

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.

What are the Transfer Pricing methods?

Traditional profits method rely on profit levels.

The Five Transfer Pricing Methods. …

Transfer Pricing Method 1: The Cup Method. …

Transfer Pricing Method 2: The Resale Price Method. …

Transfer Pricing Method 3: The Cost Plus Method. …

Transfer Pricing Method 4: The Transactional Net Margin Method.

Transfer Pricing Method 5: Transactional profit Split Method.

What is Transfer Pricing in income tax?

In taxation and accounting, transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control.

What are the objectives of Transfer Pricing?

Aims & Objective Of Transfer Pricing:

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.

What is the general Transfer Pricing rule?

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.

What is a Transfer Pricing policy?

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.

What are the main objective of adopting Transfer Pricing?

The pricing of exchanges of goods among different units of the same corporate body is known as transfer pricing. The main objective of adopting transfer pricing is to facilitate exchange of goods and services between a company and its foreign subsidiary or affiliate.

What is Transfer Pricing strategy?

Transfer pricing is a pricing arrangement for a transaction between related legal entities within a multinational enterprise. Intercompany transactions may include the transfer of tangible goods, services, intangibles and loans.

What are the types of Transfer?

Types of Transfer– 5 Major Types: Production Transfers, Replacement Transfers, Shift Transfers, Remedial Transfers and 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.

What is the performance evaluation objective of Transfer Pricing?

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.

Why Transfer Pricing is done?

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.

What is Transfer Price and sale price?

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.

What is marginal cost Transfer Pricing?

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.

What is arm’s length price in Transfer Pricing?

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.

How is arm’s length price calculated?

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.

What is arm’s length price?

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.

What is international Transfer Pricing?

International Transfer Pricing: Defined

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.

How is Transfer Pricing calculated?

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).