FINANCE

HOW DOES TRANSFER PRICING AFFECT YOUR TAXES?

by obitaxan

Transfer pricing is pricing of goods and services for related persons.

Related person(s)  is as listed below.

– Associated companies.
-Companies in group of companies.
-Blood relations.
-Director or chairman of two companies(the two companies are related).

Examples of related parties transactions includes the following: 
1.Transactions between a company and its Subsidiary or related company.
2.Transactions between a director and his/her company.3.Transactions between  a person with substantial amount of shareholding and his/her company.4.Transactions between a company and a person related to the principal  officer of that company.   For example C.E.O’s wife and the company.5. Transactions between companies where  the director of one of the companies has a substantial interest in    another.6 . Transactions between blood relations and relatives.

7. Transactions between employer and the employee.

Sometimes it become difficult to know the actual cost of transactions between two related person(s).

However the tax authority assume these transaction to be artificial and adjust it to reflect the actual cost of transaction in order to estimate profit and tax.

It is necessary that  businesses establish a transfer Pricing policy and good transfer pricing  documentation that reflects market value. 

Transfer pricing have been a controversial topic in the area of taxation .
Below are areas difficult to price and enforce in transfer pricing.
 
1.Pricing of patent , royalties and discoveries.
2.Group discoveries and services.



Disclaimer: Obi Azubuike is not by this publication acting as a professional advisers and therefore not liable to any  damage whatsoever for your acting or refraining to act based on  this publication. Consult your professional for advice. 

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