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Transfer Price

In: Business and Management

Submitted By Dauos
Words 2245
Pages 9
Introduction

Transfer pricing has long been an important cost management topic for transactions among domestic subsidiaries. The concern is to promote actions and behaviors that seek to maximize the corporate performance and profitability rather than the subsidiary performance. Unlike transfer pricing between two divisions of the same company, this transactions between subsidiaries cross international boundaries, involve tax issues concerning the determination, analysis and adjustment of prices between this related entities.

I. Transfer price

1. Transfer price definition

The transfer prices are the prices at which an enterprise transfers physical goods and intangible property or provides services to associate enterprises. They are the prices charged for any transaction between affiliates entities. This transfer may be commercial, financial or technical. According to the OECD, two companies are associated if one of the enterprises participates directly or indirectly in the governance, management, control or the capital of the other or if the same persons participate directly or indirectly to the management, control or the capital of both enterprises.

They can be defined simply as transactions prices between companies of the same group and resident in different states. This type of transactions involves intra-group transactions crossing borders.

Example: Within a MNE group, a subsidiary A established in France sells computers to another subsidiary B established in Britain, the selling price of computers is a price transfer.

The goal of the transfer pricing rules is to accurately measure income between related parties by determining the “arm’s length” price that the selling company would charge an unrelated party.

2. Arm’s length principle

According to the Article 9 of the OECD Model Tax Convention, the arm’s length principle…...

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