What does Transfer pricing mean?
Transfer pricing is the amount charged between associated enterprises for the purchase of goods, services or intangible property. This is important for tax purposes as the pricing agreed between associated enterprises will have an impact on the amount of taxable profits each enterprise generates. Broadly speaking, enterprises are associated if one directly or indirectly controls the other, or they are both under common control.
Most territories therefore have transfer pricing legislation in place, which usually requires transactions between associated enterprises to be carried out on arm’s length terms, reflecting the pricing that is likely to be agreed between independent parties operating in the same circumstances. The enterprises will also be required to maintain appropriate documentary evidence to support the arm’s length terms of the relevant transactions.
What Is an Arm’s Length Transaction?
An arm’s length transaction refers to a business deal in which buyers and sellers act independently without one party influencing the other. Arm’s length transactions assert that both parties act in their own self-interest and are not subject to pressure from the other party.
Our services
As an experienced team of tax advisors, tax experts and lawyers who deal with transfer pricing, we can help you in the following matters:
- Designing your transfer pricing policies.
- Preparing your transfer pricing documentation, including coordinating transfer pricing documentation projects across including in foreign jurisdictions.
- Undertaking economic benchmarking analysis to establish arm’s length prices.
- Operational transfer pricing, including assisting with the practical implementation of your transfer pricing policies.
- Transfer pricing controversy.
- General transfer pricing advice and the restructuring of existing policies.
- Reviewing inter-company arrangements to identify other potential tax issues, such as withholding tax or VAT.
- Governance processes.
- Tax authority engagement and representation in the APA and MAP procedures.
APA (advance pricing arrangements)
An APA is a contract, usually for multiple years, between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related-company transactions. These programmes are designed to help taxpayers voluntarily resolve actual or potential transfer pricing disputes in a proactive, cooperative. An APA offers a company several other benefits. It provides greater certainty on the transfer pricing method adopted, mitigating the possibility of disputes and facilitating the financial reporting of potential tax liabilities. Importantly, an APA also reduces the incidence of double taxation, and the costs associated with both audit defence and documentation preparation.
MAP (Mutual Agreement Procedure)
The mutual agreement procedure (MAP) is an instrument for the resolution of international tax disputes whenever a person considers that the actions of one or both of the contracting states’ tax administrations result or will result in taxation not in accordance with the provisions of a tax convention or of a tax treaty.