There are different methods and ways in which businesses and other enterprises work and operate. Regardless of the services offered and operations, the enterprise has to comply with accounting and taxation rules provided. That is transfer pricing. The role of transfer pricing is to ensure the accounting and taxation practice within an organization adheres to certain rules and regulations.
The transactions that are most affected by these rules include services between and within enterprises that are under common or ownership. The main reason as to why these rules are used is to avoid the disadvantages that come with arms-length principle. Under this principle, the transactions can be overtaxed or the taxable income can be distorted by the potential for cross-border. In most countries, intragroup transfer costs can be affected negatively by being overcharged unless some rules and regulations are imposed.
This is more so when the arm’s-length principle is applied. However, when transfer pricing is adopted, the tax authorities are allowed to make the price adjustments for cross-border intragroup transactions. This includes transfer of tangible and intangible properties, goods and services as well as loans. This principle addresses the taxable income the company should make by lowering down the price of goods bought from an affiliate enterprise.
This is also done by raising the royalty fees that a certain company will charge new customers who want to use its brand name or its proprietary technology. these calculations are done using different methods. The calculations must however comply with the principle of Arm’s Length. The main purpose of this principle is to ensure multinational companies are not double taxed.
Under this principle, the company is subjected to a uniform taxation formula. This allows the home and foreign countries to share tax levied without double taxing the company. However, it is important to get services from professionals such as CrossBorder Solutions on matters concerning transfer pricing in order to ensure you have benefited from the service.
This allows the business and its subsidiaries to have a uniform financial plan. On the other hand, they are able to locate the source of income. Through this, the business is also able to choose a country with low tax pressure. They are also able to avoid countries with high tax pressure. Through this, a company is able to maximize its profits. There are some benefits that come with dealing with the best provider such as CrossBorder Solutions when looking for transfer pricing services.
The first benefit is cost and expenses reduction. It also eliminates costs associated with double taxing. Another benefit that comes with transfer pricing includes simplicity in internal accounting and taxation systems and services. It also lowers down the cost of supplies from affiliate enterprises.