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Transfer Pricing defined

Transfer Pricing & Country-by-Country Reporting

Transfer pricing is one of the top tax concerns for multinational companies. It describes all aspects of inter-company pricing arrangements for goods and services sold between legal entities within a corporate group.
 

Background and why it’s important

With the rise of globalisation, cross-border intra-company deals have become increasingly common. As a result, the Organisation for Economic Co-Operation and Development (OECD) and the United Nations Tax Committee have endorsed an “arm’s length” principle in setting transfer prices, meaning that a company should set them at the same level they would use if the other trading party were an outside company rather than part of the same entity. Companies are instructed not to use the pricing “creatively” to avoid taxes in the higher-tax jurisdiction.

In practice, the “arm’s length” rule, which many countries have enacted into law, is hard to enforce. It creates tension between companies, which want to minimize taxes and maximize revenues, and tax authorities, which want to maximize their own revenues.

In short, by charging above or below the market price, companies can use transfer pricing to transfer profits and costs to other divisions internally to reduce their tax burden. Tax authorities have strict rules regarding transfer pricing to attempt to prevent companies from using it to avoid taxes.


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As multinational companies and their supply chains encounter ongoing challenges as a result of the coronavirus pandemic, transfer pricing can be an effective tool to reposition cash and ensure profits are allocated in a tax-efficient manner.

How can Vistra help?

We can ensure your multinational enterprise complies with the transfer pricing documentation and disclosure requirements of all your countries of operation – this includes country-by-country reporting, master file and local file documentation. 

Our proven approach to assessing and documenting transfer pricing practices and giving recommendations has helped hundreds of multinationals across the world minimise their risks and promote tax efficiencies in a fully compliant manner. ​

 

Here’s a step-by-step summary of how we can help your organisation:​
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Step 1: Assessment
We’ll review your countries of operation and their related transfer pricing requirements, including country-specific revenue thresholds and documentation requirements. ​
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Step 2: Analysis
We provide an in-depth analysis of your related-party cross-border supply chain in light of the transfer pricing requirements of all your countries of operation.​
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Step 3: Documentation
We’ll fulfil the transfer pricing documentation and reporting requirements of all your countries of operation based on our analysis

 

Stress testing and post-implementation review is another option if your transfer pricing documentation has already been prepared – we’ll work with you to understand your operational framework in light of your existing documentation.

This may include, for example, revisiting your transfer pricing documentation for required updates due to local tax law changes or operational supply chain changes within your organisation.​

 

 

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