Transfer Pricing

Transfer pricing concerns the prices at which related companies in different tax jurisdictions transact with each other. Because these prices have a direct nexus with each company's taxable income, inter-company transactions are heavily scrutinised by government authorities nowadays.

There are legitimate, permissible transfer pricing methods that help a business avoid excessive taxes and ensure stable cash flow, liquidity and proper resource allocation among all its subsidiaries.

Typical cross-border transactions governed by the provisions of transfer pricing include:

• sale of finished goods;
• purchase of raw material;
• purchase of fixed assets;
• sale or purchase of machinery;
• sale or purchase of intangible assets;
• reimbursement of expenses paid or received;
• IT-enabled services;
• ancillary support services;
• software development services;
• fees for technical services;
• fees for management services;
• royalty fees;
• corporate guarantee fees;
• receiving or paying off credit.

For management accounting and reporting purposes, MNCs have some freedom to decide how they allocate profits and expenses to their subsidiaries in various countries. These subsidiaries may be divided into segments or may be standalone businesses. Transfer pricing helps allocate revenue and expenses to national and international counterparts efficiently.

The prices at which inter-company transactions take place are critical to the profitability of such subsidiaries. Transfer pricing can also affect shareholders' wealth, as it has a direct nexus with an organisation's taxable income and its post-tax free cash flow.

Businesses with international inter-company transactions therefore need to manage transfer pricing carefully, especially for legal compliance, to avoid the consequences of non-compliance such as penalties and scrutiny.

We coordinate with your management on all decisions pertaining to transfer pricing, design an accounting system that is consistent with the transfer pricing rules, and resolve issues regarding international transfer pricing. Because we offer all the CFO services, we can take care of everything in your business that is finance, from bookkeeping to tax filings.