Actually, each business or enterprise has its own way of doing things. 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.
These rules apply to branches and entities sharing the ownership. When these rules are applied, disadvantages associated with Arm’s Length principle are eliminated. IT becomes hard for cross-border tariffs and charges to affect the enterprise taxation and charging. Through the rules and regulations governing this type of transaction, countries that do not follow these guidelines cannot overtax the enterprises.
When the principle or Arm’s Length is used, tax is computed in the best way. 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. For instance, a company’s taxable income may be increased when the price of goods the company purchases from an affiliated foreign manufacturer is reduced.
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. The methods that these companies use to do the calculations differ. However, all tax computations and calculations under transfer pricing must comply with the Arm’s Length Principle. Through the principle, companies operating internationally are not double taxed.
This principle subjects a company that has branches in different countries to a uniform tax computation formula. The tax levied is shared by both countries. However, in order to ensure you have enjoyed the benefits that come with these policies, consulting with tax professionals such as CrossBorder Solutions is advisable.
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. They are also able to locate a country whose tax pressure is low. The companies also get a chance to know the countries whose tax pressure is high. This is what brings about profit maximization. There are some benefits that come with dealing with the best provider such as CrossBorder Solutions when looking for transfer pricing services.
First, you get a chance to reduce expenses and costs. Double taxing disadvantages are also eliminated. Taxation and accounting systems also become simplified. It also lowers down the cost of supplies from affiliate enterprises.