Transfer pricing points to the goods and services under common control that is exchanged among the companies. An example is if a subsidiary company would sell goods and render services to a sister company or a holding company the price that is charged is known as transfer pricing. Hence the importance of transfer pricing consultants in Pune has enhanced at a major level in recent times.
Any entity that is under a common control, refers to all those that are controlled by a single parent module. A multinational corporation resorts to the use of transfer pricing for allocating profits. This is the earnings before taxes and profits that exists among the numerous subsidiaries in an organization.
From a taxation perspective transfer pricing offers numerous benefits for a company. A regulatory authority often frowns upon manipulation of transfer prices to reduce taxes. An effective but legal form of transfer pricing, would be able to take advantage of various tax regimes existing in numerous countries of the world. It is mainly for the goods and services that is produced in countries with lower taxes.
In certain cases the companies may reduce the expenditure on interrelated transactions. It is on goods and services being exchanged at an international level. An international law is governed by OECD or the auditing firms falling under the scope of the same. Then they would be able to audit all the financial details of the firm accordingly.
The benefits of transfer pricing
- First and foremost transfer pricing helps to reduce duty costs. It is mostly the case when you ship goods into countries with higher traffic rates indicating that the duty base of such form of transactions would be lowered
- Reduction of corporate taxes and income in high tax rate countries by overpricing goods. It would be transferred to countries which have low tax rates enables a company to obtain a higher profit margin
The points to consider with transfer pricing
Availing the expertise of transfer pricing consultants in Pune does have its own set of challenges.
- Between the various departments of an organization they may be disagreements relating to the policies of pricing and transfer
- A lot of additional cost is incurred that would be in terms of manpower or time necessary for executing transfer prices. In addition there arises a proper accounting system to support them. The concept of transfer pricing not only is a time consuming methodology but is complex.
- It would be really difficult to arrive at the price of intangible items like services rendered. This would be something that is not sold externally
- A buyer along with a seller is known to undertake various functions assuming numerous risk types. An example is that a seller may refuse a warranty of a product. Though the price that is paid by the buyer would have an impact on the same.
To sum up things our discussion would be incomplete without mention of Arm’s length principle. It is a principle that is based on real markets.
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