Transfer Pricing

Transfer pricing It implies the techniques of charging for goods and services transferred from one undertaking to another within the same group.

Alternative approaches • Transfer at direct cost • Transfer at direct cost plus overhead and margin • Transfer at a price derived from end-market prices • Transfer at an “arm’s-length” price

Financial dimensions of transfer pricing

Minimization of global tax liability not the be-all and end-all of transfer pricing. Other aspects include: II. The relationship between transfer pricing and external pricing for that market. III.Impact and incidence of customs, octroi, sales tax, excise duty and other indirect taxes.

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Implications of tax concessions available to units operating in backward areas and to new units as such. II. Unit-by-unit assessment of cash inflows, outflows, and fluctuating balances from time to time in juxtaposition to the day-to-day needs, future commitments and the required level of re-investment in each case.

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Additional burden of transport, storage, packaging, marketing and other costs attributes to the techniques of transfer pricing II. The need to adjust long-term capital structure and to adopt short term borrowings/investment/reinvestment programmes at multi-national headquarters and local offices

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The likely loss or gain on account of fluctuations in foreign exchange rates from time to time II. The extent to which multinational transfers are so designed that the MNC acquires and organizes into production various factor inputs from and at different places in the world, and market worldwide under the least cost and maximum profit principal.

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The type of labour unrest and socio-political transactions created in various countries due to multinational transfers and their impact on the future financial flows of the MNC II. The nature of government restrictions on multinational transfers and their effect on the MNCs financial performance.

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The implications of UN’s new international economic order and of the respective bilateral/multilateral arrangements, as also of various global/regional institutions such as World Bank, IMF, IDA, IFL, European Community, etc. II. The overbearing impact of environmental factors in various countries on the product life cycle and overall financial viability of the MNC.

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In multinational business, a plethora of transfer take place between the parent/apex/holding company and its subsidiaries/associates/affiliates parity on account of their inherent specifications i.e. comparative advantage in respect of certain functions/services/areas of operation and parity as part of the global strategy to minimize tax and other such liabilities.