Transfer Pricing

Transfer Pricing

Introduction

Transfer price is a price at which an enterprise transfers tangible property, intangible assets, or renders services to associated enterprises. Transfer pricing corresponds to international tax issues related to the setting, analysis and adjustment of prices between legal entities established in different countries in relation to the goods sold and services provided or fees granted (Eden, 1983). Transfer pricing has become an important issue for business communities. Well-known scholars have described this as a practice that is adopted by the multinational firms in increasing their overall profit and reducing the tax payment (Urquidi, 2010).

Governments of various countries are trying to follow the principles of US in making transfer pricing and its accountability a strategic priority. However, under current economic and political tension, it is quite difficult to draft effective pricing policy (KPMG, 2012).

Government needs to consider various concerns with respect to transfer pricing; at first, it is imperative for the multinational organization to resolve the problem of corporate transfer pricing, economic problems and others (Eden, 1983). In addition to this, transfer pricing provide certain tax opportunities and has considerable effects on the performance of the company. Also, there are several other ethical issues that needs to be considered before incorporating transfer pricing policy (Noreen, et al, 2010).

Discussion

Tax Planning Opportunities

It is known fact that government of all countries are focusing on increasing their tax scale by implementing different policies since they have not able to achieve the desired results. In order to increase the overall tax revenues and to prevent people from abusing the tax system, global business authorities have introduced certain policies that are mandatory for the entire business community to follow (KPMG, 2012).

In the year 2007, Norway ministry of finance drafted transfer price documentation with the idea of increasing tax revenues, and instructed the tax authorities to assess the business communities in transfer pricing documentation (KPMG, 2010). Further, for the betterment of its members, OECD in 1995 described proper guidelines for transfer pricing (Urquidi, 2010).

OECD in accordance with its mission and aim of supporting the economic growth and financial stability of all its members' countries, has presented the framework that helped the countries in monitoring the transfer pricing activities. Also in the light of OECD guidelines, countries have the option of enforcing penalties to an organization that are violating prescribed policies.

For better understanding, OECD frequently arranges meeting and conferences with the member countries. Further in the meeting of 2006, it was unanimously decided by the board countries that profits generated from the transfer of goods will be settled according to the Laws of each country. Following the instructions of Organization for Economic Co-operation and Development (OECD), countries like Unites States and UK have developed their own transfer pricing policies for the tax benefits of the country (Urquidi, 2010).

In addition to these transfer pricing agreement, there are ways designed to reduce the element of tax liabilities for the Cooperate firms and guide in strengthening the tax revenues of the country. A firm requires incorporating a transfer pricing policy that ...