Just understand it like this, when two related companies, in different tax jurisdictions, make overpriced/underpriced transactions with each other to save on the overall tax, that is called transfer pricing. Transfer price is arbitrary and has nothing to do with cost, added value, market forces. The effect of transfer pricing is that business entities make less taxable income or excessive loss on transactions which reduces their tax liability. 

There are a lot of completely legitimate transfer pricing methods using which a business can save excessive taxes and ensure stable cash flow, liquidity and proper allocation of resources amongst all its subsidiaries. If a business can set its transfer pricing game right, growth prospects get almost double!

Below mentioned are some typical cross-border transactions that are governed by the provisions of transfer pricing:

• • Tangible property transfer
  • Intangible property: use or transfer;
  • Receiving or providing cross border services;
  • Borrowing transactions;
  • International trading with various financial instruments
  • Leasing transactions and
  • Cost-dividing arrangements on intangible property

The US Treasury makes the law pertaining to transfer pricing and Internal Revenue Services governs it via active field examination programme and administrative guidelines around it.

Internal Revenue Code 1986 and the US Treasury regulations are the primary laws regulating transfer pricing in the US. Further, provisions of the Foreign Account Tax Compliance Act, 2010 and Tax Cuts and Jobs Act (TCJA) should also be taken into consideration while drafting your transfer pricing strategies. 

On top of that, there are guidelines by the Organisation for Economic Cooperation and Development (OECD) and approx. 40 international tax conventions incorporating standards for arm’s-length that the US has signed. 

For management accounting and reporting purposes, MNCs have the freedom to a certain extent to decide how they will allocate the profits and the expenses to the subsidiaries present in various countries. These subsidiaries might be divided into various segments or might just be a standalone business. In such cases, transfer pricing helps in allocating revenue and expenses to its nationwide/international counterparts in an efficient manner.

One of the critical factors for the profitability of such Subsidiaries’ are the prices on which the inter-company transactions take place. Nowadays, inter-company transactions are heavily scrutinised by government authorities. Also, transfer pricing could impact shareholders’ wealth as it has a direct nexus with an organisation’s taxable income and its post-tax, free cash flow.

We are known for optimal coordination with the organization’s management for all the decisions pertaining to transfer pricing and making things effortless. We design an accounting system that commensurates with the transfer pricing rules and resolve the issues regarding international transfer pricing like butter. We offer all the CFO services, thus we are capable of taking care of everything in your business which is finance from bookkeeping to tax filings.

To know how can we add value and implement our innovative solutions in your business, give us a ring at 7727887799 (also available on WhatsApp) or drop us an email at hello@usaindiacfo.com with all your queries and our team will reach out to you within 2 hours.

We help you with transfer pricing, along with providing a range of other services to take full accountability as the virtual CFO to your business.

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