There are different methods and ways in which businesses and other enterprises work and operate. 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. This is because transfer pricing involves guidelines and rules that govern taxation for a certain enterprise of business entity.
These rules apply to branches and entities sharing the ownership. When these rules are applied, disadvantages associated with Arm’s Length principle are eliminated. Under this principle, the transactions can be overtaxed or the taxable income can be distorted by the potential for cross-border. 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. Adopting transfer pricing gives tax authorities the power to make adjustments concerning 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.
The principle also uses the loyalty program for new customers intending to use its brand name, identity and proprietary technology. There are different methods that are used to do the calculations. 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.
It ensures the company gets a single international tax formula or computation. 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. You need to get consultancy services from a provider like CrossBorder Solutions if you have to enjoy these benefits associated with transfer pricing.
This allows the business and its subsidiaries to have a uniform financial plan. This also enables the business to effectively locate its source of income. They are also able to locate a country whose tax pressure is low. They are also able to avoid countries with high tax pressure. This is how a business maximizes its profits. When transfer pricing is consulted from experts like CrossBorder Solutions, you will enjoy certain benefits.
The first benefit is cost and expenses reduction. Costs associated with double and over taxation are eliminated. It also comes with simplicity of internal accounting and auditing. The mother company is able to get supplies from its abroad branches at a relatively lower cost.