1. ” Global Transfer Pricing: A Practical Guide for Managers “, Ralph Drtina, Jane L. Reimers, S. A. M. Advanced Management Journal, v74n2, Spring 2009. Transfer Pricing Article Summary The authors give a beneficial guide for managers for selecting and implementing a transfer pricing policy. According to the article, transfer pricing are the amounts charged for goods and services exchanged between divisions of the same company. In a multinational company strict international tax laws regulate the amounts charged for goods and services, tangible or intangible, which cross borders. The article advises a company with operations in more than one country to be cautious when setting transfer prices for goods or services sold between divisions. The managers can learn from this article that methods traditionally used to set prices between divisions in a single country may not be acceptable for international tax purposes. The article addresses two major types of transactions, intra-company sales of products and intra-company licensing of intangible property. A multinational company can maximize the profits by shifting profits from divisions in high-tax to divisions in low-tax jurisdictions countries. A description of how global transfer pricing works is given along with transfer pricing effect on taxable income. In this global economy, the trend for countries is to strengthen their effort to collect tax revenues from transfer pricing. A company can mitigate tax conflicts by negotiations and price agreements. The article describes the arms-length principles used by most countries and standardized by IRS S428 and by OECD (Organization for Economic Co-operation and Development) rule. The article indicates what challenges need to be resolved when applying these standards. Under the arm’s length principle one compares the remunerations from cross-border controlled transactions within multinationals with the remuneration from transactions made between independent enterprises in similar circumstances. The arms-length principle has become the international norm for allocating the tax bases of multinational enterprises among the countries where they operate. Five transfer pricing methods for finding arm’s length price are presented along with the comparability issues related to selecting the method and determining the transfer price. The article illustrates the arms-length principle applied for transfer pricing for intangible assets. These assets include intellectual property, patents, formulas, copyrights, trademarks, brand names, licenses, or software. The article show numeric examples of approved ways to calculate transfer prices and explain how application differs between tangible goods and intellectual property. The article concludes with a series of guidelines for managers on how to be aware of the complexity of transfer pricing and how to minimize the risk associated with multinational intra-company transfers. Every multinational company should have a documented transfer policy that guides managers’ actions. A company should continue to update its transfer price policy whenever changes to its business affect the factors used to establish the arm length principle. In addition a company with many cross-border transactions should consider an advanced pricing agreement to ensure tax dispute will be kept to minimum. In order to avoid significant cost or penalties to their multinationals companies, managers should become familiar with the regulations of the countries involved, for example using OECD and IRS resources. Analysis and Opinion This article expands the information about transfer pricing from textbook, and emphasizes the aspect of international transfer pricing. Given the global and sometimes controversial nature of transfer pricing, it is important to develop internationally shared principles, as the arm’s length principle, to help each country fight abusive transfer of profit abroad, while at the same time limiting the risk of double taxation of those profits. This article has a lot of applicability to my job, since I work in a multinational company, in projects that develop products across borders and involve transfer pricing. Intellectual property issues (e. g. , valuations) can have significant implications on an organization’s taxes and financial performance. The intangible assets, tax valuation of intellectual property and transfer pricing are highlighted by the article.
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