Transfer Pricing

Transfer pricing is a priority for tax authorities all over the world.  It is important for a number of reasons, including:
  • Tax compliance. Tax authorities around the world require multinational companies to use arm’s length transfer prices for transactions between their related entities. This means that the prices charged for goods and services transferred between related entities must be the same as the prices that would be charged between unrelated entities. This helps to ensure that multinational companies pay their fair share of taxes in all jurisdictions where they operate.
  • Financial reporting. Transfer pricing can have a significant impact on the financial statements of multinational companies. For example, a company that sets its transfer prices too high may overstate its profits in high-tax jurisdictions and understate its profits in low-tax jurisdictions. This can lead to misleading financial statements and make it difficult for investors to assess the company’s true financial performance.
  • Business decision-making. Transfer pricing can be used to support a company’s business goals. For example, a company may use transfer pricing to shift profits to low-tax jurisdictions, or to invest in research and development in high-tax jurisdictions. Transfer pricing can also be used to align the interests of different parts of a multinational company.
Overall, transfer pricing is an important tool for multinational companies to manage their tax liabilities, financial reporting, and business operations.
Governments are concerned that a company may use transfer pricing to shift profits to lower-tax jurisdictions.  This can help the company to reduce its overall tax burden.  It is important to note that transfer pricing is a complex topic and there are no one-size-fits-all solutions. Multinational companies should consult with qualified tax and accounting advisors to develop a transfer pricing policy that meets their specific needs.
 

Cross-border business transactions with related parties have to be established following the internationally accepted arm’s-length-principle and must be documented in line with domestic tax rules. Only if transfer pricing is understood as a continuous process will the taxpayer be able to minimize the related tax risks in the long run without putting their business model – as a base of corporate success – into question.

Read more about Transfer Pricing in the USA: https://htj.tax/transfer-pricing-in-usa

Read more about Transfer Pricing in Indonesia: https://htj.tax/2019/10/transfer-pricing-in-indonesia/

Read more about Transfer Pricing Strategy – Limited vs. Full Risk Distributors: https://htj.tax/2022/06/transfer-pricing-strategy-limited-vs-full-risk-distributor/

We have significant experience assisting our clients with complicated, international tax issues. The following list represents some of the areas in which we have provided both planning and compliance services for our clients:

  • US shareholders of foreign corporations
  • US partners in foreign partnerships
  • US grantors and beneficiaries of foreign trusts
  • US shareholders of Passive Foreign Investment Companies (PFICS)
  • Reporting for Foreign Bank and Financial Accounts (FBARs)
  • Blocked income reporting for deferral of tax in currency restriction situations
  • Donations to foreign charities by US private foundations via expenditure responsibility grants
  • Income tax treaty analysis for various issues including determination of residency, re-sourcing of income to avoid double taxation, reduction or exemption of tax
  • Determination of residency for income tax purposes for foreign nationals including optimization of elections for first and last year of residency
  • Social Security tax implications to compensation of foreign nationals and US expatriates including application and analysis of Totalization agreements
  • Foreign tax credit optimization including analysis of paid versus accrued methods and maximizing foreign source income
  • Optimization for US expatriates including analysis of foreign tax credit versus foreign earned income exclusions
  • Reporting of foreign rental properties including proper depreciation methods and treatment of rental of principal residence
  • Reporting and planning for nonresidents with US investments or US effectively-connected income
  • State residency and domicile issues for foreign nationals and US expatriates
  • Reporting gifts and inheritances from nonresidents
  • Consulting to employers of international assignees relating to tax equalization policy development and application, tax planning for international assignments including coordination with tax advisors in local jurisdictions, compensation structuring, payroll reporting and employee education and tax return preparation
  • Determination of residency for US citizens in US possessions