Understanding Transfer Pricing
As a company with subsidiaries and group companies abroad, you may face increasing requirements regarding transfer pricing. This refers to the prices charged between different parts of your company for the delivery of goods and services. Tax authorities aim to ensure that these prices reflect an “arm’s length” standard, meaning they should be consistent with prices charged between unrelated parties. This is crucial for verifying that profits are not artificially shifted between jurisdictions.
The Growing Focus on Transfer Pricing
Recent years have seen high-profile companies like Starbucks and Apple come under scrutiny for their tax-saving strategies. While these companies comply with legal regulations, the perception of fairness regarding their tax contributions is often debated. In response, tax laws are becoming more complex, making it essential for multinational businesses to have a comprehensive understanding of transfer pricing. The key question is not if tax authorities will inquire about your practices, but when.
Special Attention for Unique Situations
In addition to standard business transactions, tax authorities scrutinize specific situations, including:
- Internal Reorganizations: When functions or entire business units move between countries or when companies close.
- Loan Agreements: Transactions between group entities, particularly those with write-downs or write-offs.
- Intellectual Property Usage: Transactions involving trademark rights or know-how granted between group entities through cross-licensing.
- Allocation of Head Office Costs: How administrative costs are distributed across various business units.
Proactive Planning for Potential Queries
Engaging with tax authorities regarding transfer pricing is a common concern, especially if your company has structurally loss-making activities or significant profit fluctuations. These aspects may raise questions about whether your business operations align with market expectations.
Your Comprehensive Transfer Pricing Strategy
To mitigate risks and ensure compliance, it is vital to document how you calculate internal pricing. Many businesses choose to benchmark their pricing against external market data using transfer pricing databases containing millions of comparable transactions. This proactive approach helps identify potential areas of concern before audits arise.
Tailored Support from Voorwarts Tax Advisors
At Voorwarts Tax Advisors, we specialize in developing effective transfer pricing strategies and documentation tailored to your business needs. With extensive experience in multiple countries, we can also assist in obtaining rulings from tax authorities to provide additional security. Moreover, an optimized transfer pricing strategy can help lower your global effective tax rate.
Get Started Today!
Contact us for a no-obligation consultation to learn more about how we can enhance your transfer pricing compliance and support your business’s financial strategy. Your peace of mind in the complex world of transfer pricing is our priority!