Critical Concerns in Transfer Pricing and Practice

Critical Concerns in Transfer Pricing and Practice

Critical Concerns in Transfer Pricing and Practice

Critical Concerns in Transfer Pricing and Practice

Synopsis

For multinational corporations (MNCs), there is arguably no more important operational function that affects all areas of manufacturing, marketing, management, and finance as international transfer pricing--the practicing of supplying products or services across borders from one part of the organization to another. Its complexity is compounded by the impact of e-commerce, speeding the flow of goods and services; "intangible" assets, such as intellectual property, whose value is difficult to quantify; and the activites of policymakers around the world to update their laws and regulations, in efforts to close loopholes that have historically encouraged tax avoidance. Abdallah provides an in-depth overview of these recent trends and developments, and offers practical insights for creating transfer pricing systems that maximize value for the company while remaining sensitive to local policies in all of the countries in which it operates.

Excerpt

For the past three decades, all multinational companies (MNCs) have experienced no business function that goes so deeply into nearly all business operations—including manufacturing, marketing, management, and financing—as international transfer pricing. For MNCs, international transfer pricing decisions have great impact on their international operations all over the world, directly affecting their global revenues and profits, and can help or limit an MNC's ability to operate, manage, and utilize its economic resources on a global basis for the purpose of achieving its ultimate goals. Moreover, transfer pricing is considered one of the most important as well as most complicated business issues in the world. This complexity is compounded when transfer pricing is combined with e-commerce and intangible assets' cross-border business transactions.

As globalization and Internet technology expand so quickly, tax authorities worldwide are paying close attention to transfer pricing issues and are trying to change their tax regulations and rules at a fast pace, which can mean headaches for corporate and financial executive officers of MNCs. However, the upside is that many countries are adopting a similar approach to eliminate or reduce tax abuses or tax evasion as a result of using non-arm's-length transfer pricing techniques.

As international business speeds up—accompanied by international profit manipulation—tax authorities worldwide are elevating transfer pricing to a key political priority. In the United States, transfer pricing

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