Transfer pricing refers to the pricing policies adopted by groups of companies for transactions between companies in the group, such as the sale of goods, the provision of services, or the licensing and use of technology and intangible assets.
With corporate tax rates varying considerably from country to country, tax authorities are aware of the potential for multinational groups to reduce their global tax charge by manipulating the prices charged on intra-group transactions. As a result, many countries now have transfer pricing legislation empowering their tax authorities to impute additional taxable profits to companies if they consider they have been charged too much or have charged too little on intra-group transactions.
As such, transfer pricing has become the single most important issue in the field of international taxes. All groups trading internationally can expect to be the subject of transfer pricing enquiries in one or more countries, however reasonable they consider their intra-group prices to be. For a group company to have to pay more taxes as a result of an enquiry can be a disaster; often it is not possible for group companies in other jurisdictions to obtain corresponding tax relief resulting in double taxation.
Baker Tilly International worldwide transfer pricing specialists work together to deliver global solutions for clients that protect against the threats posed by transfer pricing legislation. There are four ways in which Baker Tilly International member firms can help:
Advising on appropriate pricing for transactions with affiliates, using proven economic databases which minimise the risk of successful challenges by national tax authorities
Advising on the documentation of a group's transfer pricing policies. Most countries which have transfer pricing legislation give their tax authorities the power to demand to see such documentation and to impose heavy financial penalties if it does not exist or if it is perceived to be inadequate
- Defending a group's transfer pricing policies when they come under attack by a national tax authority
- Where appropriate, negotiating Advance Pricing Agreements (APAs) with tax authorities. Some countries offer an APA facility, under which a group's transfer pricing policies are voluntarily disclosed to the authority and discussions ensue as to whether they are fair. In some circumstances this can be the right way to proceed.