Transfer Pricing Methods Research Articles

The Thin Redline or Where Does Aggressive Tax Planning Become an Unlawful State Aid

The thesis puts at the spotlight the issue of having state aid which is incompatible with the EU law, in so far as it stems from a selective advantage granted to multinational enterprises through the means of advance pricing arrangements.It is submitted that advance pricing arrangements have a special position in the context of constant interaction between direct taxation, state aid and harmful tax competition, and in particular, a very specific position in the area of overlap between state aid and harmful tax competition.Against this background, this contribution upholds the position that such a selective advantage can derive from a non-compliant with the internationally recognized principle of the arm’s length application of transfer pricing methods. In particular, the advantages take the form of either reductions in the tax base or consolidation of the market positions of the multinational enterprises as result of profit shifting.The advantages are most commonly solicited ones as the multinational enterprises are approaching the tax authorities with the aim of getting an approval on tailor-made application of certain specific transfer pricing methods, all on the basis of their aggressive tax planning approaches.In order to substantiate these submissions, the current contribution aims at showing that advance pricing arrangements are a specific type of tax measures different from advance tax rulings and as such can be de facto selective depending on the legislative structure of their system, the presence of margin of discretion of the tax authorities and their inherent opacity.It is therefore argued that the thin redline of unlawful state aid is crossed the moment there is a selective advantage for the multinational enterprises, resulting from misapplication of transfer pricing methods, approved through an advance pricing arrangement, and that affects the trade between member states, while it is imputable to the state. In any such cases, EU state aid rules act as the necessary emergency break, as the tool that fights back against unlawful state aid measures and harmful tax competition.

Silence is golden? Evidence from disclosing related-party transactions in China

The significance and the manipulative nature of related-party transactions (RPTs) render transparent disclosure necessary and relevant for investors who infer firm value from accounting disclosures. However, the full disclosure of RPTs may not be cost effective because not all of the information that firms possess is value relevant to financial statement users. This study provides new evidence on the value relevance of additional disclosure on RPTs by using a unique, mandatory disclosure requirement of transfer pricing policies in China. We hypothesize and find that, compared to the mere disclosure of amounts for related-party sales, the disclosure of transfer pricing methods provides incremental value-relevant information beyond total sales. We also show that the disclosure of transfer pricing details complements weak corporate governance mechanisms and improves the prediction of abnormal returns. Our findings are robust to various model specifications, and demonstrate the significance of transparent and relevant RPT disclosure in inferring firm value.

Transfer Pricing: An Overview of the Italian Supreme Court’s Recent Rulings

Rulings on transfer pricing matters issued in the last few years by Italian Courts covered various themes. Among these, the Tax Authorities frequently challenged the selection and application of transfer pricing methods, comparability analyses developed by taxpayers supporting intercompany policies, the analysis of special transactions such as intercompany loans and services as well as transactions related to intangibles. The lack of a frame of reference, on the one hand, and the (perceived) uncertainty of the subject, on the other hand, engendered difficulties as to the crafting of a uniform jurisprudential orientation, leading Judges oftentimes to settle disputes through a line of reasoning, not always consistent with the Organisation for Economic Co-operation and Development (OECD’s) arm’s length principle.

Management Aspect of Transfer Pricing for Operating Companies within Iron and Steel Holding Corporations

Background /Objectives: The rapid progress of science and technology in the iron and steel industry stimulated the development of the integration mechanisms resulting in the appearance of multinational and holding corporations. Vertical integration is the most common mechanism strengthening the ties between the successive links of the processing and distribution chains of iron and steel enterprises. Transfer pricing is an important aspect of interaction between all responsibility centers within holding corporations. A distinction should be drawn between the tax and management aspects of transfer pricing. Despite the single accounting item, there is a significant difference between the tax and management aspects of transfer pricing. This article looks into the transfer pricing mechanisms for management accounting purposes. Methods/Statistical Analysis: Graphic and analytical methods of multi-product break-even analysis (break-even analysis for multi-product production with a flexible product mix). Findings: Market-based pricing is an optimum transfer pricing method. However, sometimes it appears impossible to use this method for iron and steel companies. In case there are no market-based prices, transfer prices are supposed to be set using a full costing system. It requires allocation of fixed costs by types of products. Application/Improvements: The full cost pricing method suggested by the authors sets the transfer prices ensuring equal conditions for all responsibility centers in measuring their cost management performance.

The BEPS Action 8 Final Report: Comments from Economists

This article comments on the OECD Action 8 Final Report relating to transfers of intangibles within a multinational enterprise. Specifically, it contains comments about the MNEs that are most likely to be affected and about the incentive structure created by the Final Report. In addition, this article discusses the practical application of many of the requirements contained in the Final Report, such as the definition and identification of intangible assets (including examples of such assets), issues relating to functional analysis, and comments on transfer pricing methods and valuation techniques (including comments on the application of the income method).

Вплив трансфертного ціноутворення на здійснення митної оцінки товарів

Tax issues pertaining to cross-border trade in goods between related parties (i.e., companies from the same group) represent a major challenge for many national tax and customs administrations. One of the biggest concerns is how to determine the fair market price for such operations. The methodology for determining the tax base depends on the type of tax concerned - i.e., transfer pricing methods for corporate income tax and customs valuation methods for indirect taxes. The two approaches have considerable differences, that may result in negative implications for the fiscal authorities (tax evasion) and taxpayers (disputes with the fiscal authorities, overpaid tax). The article highlights the main differences between the methods of transfer pricing and customs valuation. The author analyzes the recent Ukrainian legal changes pertaining to control over transfer pricing. The author describes potential risks for taxpayers and the areas that require settlement by the customs authorities in relation with the new transfer pricing regulations in Ukraine. The main achievement of this research is development of recommendations for harmonization of transfer pricing and customs valuation in Ukraine, inter alia considering international best practices.

Supply chain networks design and transfer-pricing

Purpose – The purpose of this paper is to provide a new modelling framework for distribution network strategy and to study how various transfer-pricing schemes cope with stochastic demand under different countries tax policies. Design/methodology/approach – Use is made of real options to quantify the available options for supply chain network design. The application of real options approach relies on three main conditions, such as the existence of uncertainty (market), flexibility (different network design) and irreversibility (investments) in the decision process. Findings – Evaluation of the potential impact of changes in local tax policies on long-run plant and distribution centers location decisions. A more intensive tax regime tends to promote changes in the distribution network that support multinational companies. In high uncertain markets, the options to change the network are more attractive – uncertainty is linked with an increase in flexibility. Practical implications – The present study provides decision makers with a useful tool for supporting the design of global logistics networks, considering different scenarios and therefore determines a more after-taxes profitable logistics network configuration. Originality/value – Integrate financial issues while studying different scenarios for supply chain network designs. It presents a model that focus on distribution network design considering transfer-pricing methods as decision variables and aiming after-taxes bottom-line results maximization. There are relatively few “reported” implementations of global profit maximization models for large-scale networks. Thus, we believe that the implementation of global profit maximization models represents a potentially significant unrealized opportunity worthy of serious consideration by many firms.

TRANSFER PRICING AS INSTRUMENT OF INDUSTRIAL HOLDING ECONOMIC MANAGEMENT

Despite mush attention which is paid to transfer pricing methods optimization they remain actual. A conceptual approaches variety when choosing production and marketing function modeling parameters, allows to consider transfer pricing as the object of micro-, meso - and macroeconomic systems. In the course of the practical implementation of models it turned to be necessary to adapt them to the specificity of strategic management in the holding entities including not only restriction in technical and economic parameters of the entire holding and its companies activity planning, but the institutional specificity of established interrelations between business processes and foreign market segments as well. The object of this study is the process of transfer pricing on steel and rolled metal by pump bars production. There exists a model demonstrating the mechanism to decide on values created when producing pump bars. The analysis of this model makes it possible to reveal the administration potentialities for improvement. The model of the transfer pricing, allowing to consider the influence of the intermediate and final products quality on the distributed financial result.

Transfer-Pricing and Game Theory

This article examines the complex nature of the transfer-pricing problem to determine how strategic considerations of organizations guide the application of different types of game-theoretic models for a profit-split transfer-pricing method. The article proposes a conceptual framework that links strategy with specific game-theoretic models in transfer-pricing decision-making.

Prioritizing Transfer Pricing Methods: An Indian and Global Perspective

The author analyses the priority given to various transfer pricing methods from an Indian perspective, as well as from the perspective of the OECD and various countries around the world.

TRANSFER PRICING AS A TOOLFOR FINANCIAL ANALYSIS OFENTERPRISES

The article outlines the basics of using transfer pricing methods applied to the financial analysis of the enterprise. It focuses on the application of transfer pricing methods not only over prices control between related organizations, but for analysis of the financial performance of companies. It proposes to use comparison of profitability of comparable companies during the reporting period. Shows an approach for the search and selection of comparable companies using information systems SPARKS or Bureau van Dijk. It analysis some examples in which the methodology is applicable transfer pricing as a tool of financial analysis.

Study on Selection Mechanism of International Transfer Pricing Methods

Study on Selection Mechanism of International Transfer Pricing Methods

TRANSFERNE CIJENE I PERFORMANSE MULTINACIONALNIH KOMPANIJA

This paper deals with the concepts of transfer pricing and performance of multinational companies. The main transfer pricing methods are presented and also their impact on the performance of multinational companies. It is particularly important to note that for real performance evaluation of multinational companies it is necessary to apply the arm’s length principle in determining the transfer prices.

Developments Regarding the Transfer Pricing Method for Exports of Commodities

The author considers developments and advantages in the use of the PECEX method, which is used to determine transfer prices for exports of commodities, as well as challenges taxpayers may still face when applying this method.

Pravidla převodních cen v členských státech EU

One of the important area of international taxes is transfer pricing. Transfer price is a price set by a taxpayer when selling to, buying from, or sharing resources with a related (associated) person. The tran­sac­tions between these persons should be assessed at their arm’s length price in according the arm’s length principle – international accepted standard – as the price which would have been agreed between unrelated parties in free market conditions. This paper is focused on the tranfer pricing rules used in particular EU Member States so as if EU Member States apply the arm’s length principle, define the related persons, apply recommendations of the OECD Guidelines, use the transfer pricing methods, require TP Documentation, exercise specific transfer pricing audit or impose specific penalties and apply APAs. Transfer pricing rules should prevent taxpayers from shifting income to related person organized in tax havens or in countries where they enjoy some special tax benefit.

Integration of the profit-split transfer pricing method in the design of global supply chains with a focus on offshoring context

This paper presents an optimization model for the design of global supply chains where the emphasis is made on transfer pricing for both tangible and intangible elements. We adopt the profit split transfer pricing method which is dictated by OECD guidelines and may be accepted by fiscal authorities. The proposed model is particularly suited for the offshoring context. In addition to transfer pricing, the model integrates several relevant decisions such as the location of tangible and intangible activities. Intangible activities refer to R&D and supplier management. Experimental analyses are conducted in order to prove the feasibility and the solvability of the model and to show the impacts of transfer pricing on supply chain decisions and profits.

The Economics of Transfer Pricing Methods & Management of Tax Risk

In this paper I derive a straightforward condition, which I call the Arm’s Length Dual Condition (ALD), for a controlled price to be, or not to be, arm’s length. A proof of the validity of this condition is carried out with respect to the Resale Price, the Cost Plus and the Transactional Net Margin pricing methods and it shows that contrary to general belief all transfer pricing methods should be treated as being two-sided, i.e. assessment of arm’s length compliance should be based on benchmarking both parties involved in the controlled transaction. The ALD Condition brings about a change in how tax administrations carry out tax audits and corporations manage their transfer pricing tax risk, the final paragraph explains the consequences of a new approach to risk management based on the ALD Condition.

Revised OECD Transfer pricing Guidelines and the Czech tax policy

In applying the international principles to the taxation of Multinational Enterprises, one of the most difficult issues that have arisen is the establishment for tax purposes of appropriate transfer prices. Transfer prices are significant for both taxpayers and tax administrations because they determine in large part the income and expenses, and therefore taxable profits, of associated enterprises in different tax jurisdictions. The Committee on Fiscal Affairs, which is the main tax policy body of the OECD, has issued a number of reports relating to the transfer pricing issues. The most important are the Transfer pricing Guidelines for multinational enterprises and tax authorities which was published in 1995. These Guidelines focus on the application of the arm’s length principle to evaluate the transfer pricing of associated enterprises, the analysis of the methods for evaluating whether the conditions of commercial and financial relations within Multinational Enterprises satisfy the arm’s length principle and discussion of the practical application of those methods. Simply, these Guidelines focus on the main issues of principle that arise in the transfer pricing area. The Committee on Fiscal Affairs continues its work in this area, on 22 July 2010 approved and released the proposed revisions to Chaps. I through III of these Guidelines and simultaneously published a new Chap. IX related to business restructuring. The revisions are the result of several years of work on comparability and the use of profit-based methods. The revised text will have a significant impact on the application of transfer pricing analysis and transfer pricing methods. The paper is focused on significant changes of newly approved Guidelines with aim to evaluate how the Czech Republic began applying the principles set out in the revised text of these Guidelines.

Transfer Pricing in North African Countries

In North African region, Only Egypt and Algeria have already implemented a Transfer Pricing regulation: Egypt introduced the concept in 2005 while the Algerian rules were implemented in 2007. Though, the measures in force are still under the urgent requirement to be improved: The Egyptian case shall focus on the transfer pricing documentation while Algeria has to further develop transfer pricing methods as well as to authorize the conclusion of Advance Pricing Agreement (APA). Tunisia and Morocco have not introduced transfer pricing rules yet, but they require that transactions between related entities should be performed in compliance with the arm's length principle.

МЕТОДЫ ТРАНСФЕРТНОГО ЦЕНООБРАЗОВАНИЯ

This article discusses methods of transfer pricing as a set of methods and operations on the justification of compliance rates in a transaction between related parties market level.