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. Transfer pricing is one of the areas that a business has to comply with when offering its services in different countries or within different co-owned branches. Transfer pricing basically involves accounting and taxation guidelines, rules and methods that enterprises are supposed to follow when pricing their transactions and services.
These rules apply to branches and entities sharing the ownership. The main reason as to why these rules are used is to avoid the disadvantages that come with arms-length principle. Under this principle, the transactions can be overtaxed or the taxable income can be distorted by the potential for cross-border. In most countries, intragroup transfer costs can be affected negatively by being overcharged unless some rules and regulations are imposed.
When the principle or Arm’s Length is used, tax is computed in the best way. The adoption of cross-border rules allows relevant tax authorities to make decisions in regard to intragroup transfers. Therefore, the authorities are given the mandate to decide on the transfer of both intangible and tangible enterprise assets as well as loans. The principle aims at increasing the company’s taxable income through tax reduction on goods moved from a branch or affiliate enterprise.
Under this principle, the company is also able to raise its income by raising royalty fees for abroad companies that want to use its technology or brand. The methods that these companies use to do the calculations differ. However, these calculations are done according to Arm’s Length Principle. This eliminates cases where companies with branches all over the world can be double taxed.
This principle subjects a company that has branches in different countries to a uniform tax computation formula. Under this formula, the home and foreign countries in which the company operates are able to get their tax shares without the organization being overtaxed. 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 is because when business and enterprise subsidiaries or branches follow a similar commercial strategy, they are able to plan their operation in the best way possible. The business also gets an opportunity for locating its income source. Through this, the business is also able to choose a country with low tax pressure. The companies also get a chance to know the countries whose tax pressure is high. This is what brings about profit maximization. When you consult from professionals like CrossBorder Solutions, some benefits will be enjoyed.
First, you get a chance to reduce expenses and costs. Costs associated with double and over taxation are eliminated. Taxation and accounting systems also become simplified. It also lowers down the cost of supplies from affiliate enterprises.