Advantage Of Transfer Price
Transfer price is the fixation of price of any transaction between the associated enterprises of a MNE (Multinational Enterprise). Transfer price is a price which represents the value of good; or services between independently operating units of an organisation as the commercial transactions between the different multinational groups may not be subject to the same market forces shaping relations between the two independent firms. The expression "transfer pricing" generally refers to prices of transactions between associated enterprises which may take place under conditions differing from those taking place between independent enterprises. This may be arbitrary and dictated, with no relation to cost and added value, diverge from the market forces. …show more content…
They explore market and choose the most beneficial places in terms of tax and resources for their place of business. Thus creating a tax haven for themselves. That is why, transfer pricing is an emerging issue when it comes to intercompany transactions this issue is to be urgently dealt. Further, the focus is now shifted from tangibles to intangibles. Nowadays intangibles like trademarks, patents, know-how, trade secrets play a significant role in the world’s economy. Industrial research and development is an important part of any MNE now. These days’ intangibles constitute a major portion in business’s value. It is all the more difficult to establish transfer price for intangibles. Different countries have different approach to tax regulations on multinational transactions and transfer …show more content…
Transfer pricing happens whenever two companies that are part of the same multinational group trade with each other. One party transfers to another goods or services, for a price. That price is known as "transfer price". It thus refers to the value attached to transfers of goods, services and technology between related entities and also to the value attached to transfers between unrelated parties which are controlled by a common entity.
Cross-border transactions are growing rapidly and compliance with the differing requirements of overlapping tax jurisdictions is a complicated and time-consuming business. The theory of Transfer Pricing is based on the concept of ‘functions, risks and assets’. Transfer pricing for tax purposes determines the size of the taxable profit of a business unit, thus contributing to the effective tax burden of that specific unit. Transfer pricing is a mode by which Multinational Enterprises (MNE’s) makes huge profits by increasing the price of products or services in low tax jurisdictions and decreasing the price in high tax jurisdictions thereby shifting
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