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Transfer pricing, and its effect on financial reporting, global marketing

Key Concepts:

Terms in this set (11)

Due to increased IRS audit procedures, transfer pricing
Has become one of the riskiest areas for multinational corporations from both a compliance and tax planning perspective.
Amazon, AOL, Adobe, Hewlett-Packard, Microsoft and other multinationals
Have made headlines because of transfer-pricing disputes over potential adjustments to income ranging from millions to upward of a billion dollars.
Transfer Price
The price charged between related parties in an intercompany transaction.
Although intercompany transactions are eliminated when consolidating
The financial results of controlled and their domestic parents, for tax purposes such entities are not consolidated, and the transactions are therefore note eliminated.
Transfer prices directly affect the allocation of groupwide
Taxable income across national tax jurisdictions, hence, a company's transfer-pricing policies can directly affect its after-tax income to the extent that tax rates differ across national jurisdictions.
Determining a company's transfer prices requires identifying
Where value is created in an organization and transferred across group members.
Typically, value can be characterized and the comparability of a transaction with one
Between unrelated parties can be determined by factors including the assets used, the risks assumed, and the functions performed by each group member in an intercompany transaction.
The transfer price ultimately used to determine taxable income across borders
Is considered to be at arm's length if it falls into the range computed.
Transfer Pricing
Arm's-length charges between related parties such as a parent corporation and a controlled foreign corporation.
Transfer Pricing is an area
Of high-tax-compliance risk for multinational corporations and carries important implications for tax planning and financial reporting.
Determining an arm's length transfer price typically requires
Identifying where value is created and transferred; analyzing such factors assets used, risks assumed, and functions of the respective parties; and correctly applying an appropriate economic method provided in Treasury regulations and other guidance.
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