L15 Other Methods Of Tp
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Methods of TPOther Approaches to Transfer Pricing I) Two Step Pricing
-Div A will Charge actual Variable Cost (based on volume) Plus Based on agreed upon Volume - agreed amount of (FC + Profit) will be charged per PERIOD basis.
II) Profit Sharing Div A will transfer the product at standard variable cost to Div B. After selling the final product, the contribution earned by Div B will be shared by both.
III) Two Sets of Prices Credit the A’s account by MP Charge Total Std.Cost to B’s account & Charge the difference to HQ account. While consolidating the BU accounts reverse the difference. 1
Considerations in – Transfer Pricing in MNC’s 1. Taxation – tax heavens, double taxations 2. Govt. Regulations – Arms length price (in absence of which BU can set TP to minimize the tax liability) 3. Tariffs – They are certain % of import value, therefore lower the TP lower will be the tariffs. 4. Foreign Exchange Control – e.g. limit on FE spending for import. 5. Shifting of funds to desired location. 6. Joint Ventures – May enforce the specific TP. 7. Transaction, Operation and Economic
2
-Div A will Charge actual Variable Cost (based on volume) Plus Based on agreed upon Volume - agreed amount of (FC + Profit) will be charged per PERIOD basis.
II) Profit Sharing Div A will transfer the product at standard variable cost to Div B. After selling the final product, the contribution earned by Div B will be shared by both.
III) Two Sets of Prices Credit the A’s account by MP Charge Total Std.Cost to B’s account & Charge the difference to HQ account. While consolidating the BU accounts reverse the difference. 1
Considerations in – Transfer Pricing in MNC’s 1. Taxation – tax heavens, double taxations 2. Govt. Regulations – Arms length price (in absence of which BU can set TP to minimize the tax liability) 3. Tariffs – They are certain % of import value, therefore lower the TP lower will be the tariffs. 4. Foreign Exchange Control – e.g. limit on FE spending for import. 5. Shifting of funds to desired location. 6. Joint Ventures – May enforce the specific TP. 7. Transaction, Operation and Economic
2
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