Transfer Pricing: Taking a Practical Approach
by Nicole Dresser, CPA | Hellam Varon
As our business clients expand globally, they eventually encounter transfer pricing rules in the tax jurisdictions in which they operate. Transfer pricing involves analyzing related party transactions in different tax jurisdictions to ensure the prices charged are on an arm’s length basis. In order words, prices should be determined as if related parties are unrelated.
Transfer pricing rules were established in order to prevent controlled parties from manipulating their worldwide effective tax rate. In the U.S., the IRS requires specific documentation be in place at the time the related income tax return is filed to avoid potential penalties. Significant penalties may apply when prices charged to/from related parties are not at arm’s length. IRS regulations also provide methods to be used to determine the arm’s length price for the transfer of goods, services, and intangibles. Some methods are better than others; determining the appropriate method to use depends on the comparability with third parties engaged in the same transactions as well as specific facts and circumstances. Once the best method is determined, comparable companies and transactions are examined to establish a range of arm’s length prices.
We can help prepare the specified documentation required, while being mindful to scale our approach to a client’s business needs. We can also enlist local country tax expertise through our network with MGI Worldwide, to assist with foreign country tax planning and compliance needs.
As your company expands across tax borders, you need to thoughtfully consider the structure of operations. The placement of certain functions, risks, and assets in different tax jurisdictions can significantly impact the prices charged. We are here to help you establish, as opposed to defend, prices. We can also help your company review and document its functions and cost structures to better manage its global supply chain, while taking a strategic approach to taxation.
Nicole Dresser, CPA
After almost 15 years experience in both public accounting and the private sector, Nicole understands the life cycle element of family-owned businesses and likes the challenges in assisting clients at the intersection of their business and personal needs.
