Page 51 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

 Neither party is controlled; the transaction is
wholly independent from the taxpayer’s ac-
tivities).

The transfer pricing rules recommend that a taxpayer compare
its totally controlled transactions with transactions between a
controlled party and an uncontrolled party. The rules, generally,
do not favor the comparison of wholly independent transactions
to determine price. The transfer pricing rules emphasize the
requirement to compare between wholly controlled transactions
with transactions between a controlled party and uncontrolled
parties, which is often referred as the in-house comparables.

Approaches to Transfer Pricing

Tax adjustments based on transfer pricing is becoming an
important issue for many global companies. The transfer pricing
rules have sought to impose extensive general principles and
guidelines that apply when the taxpayer selects the transfer
pricing method. Incorrect method selection imposes penalties
and additional taxes at home and abroad. In addition, the
administrative cost of complying with the rules can be
expensive, thus, implementation of the transfer pricing rules
may impose significant costs on the taxpayer above and beyond
the taxes themselves.

As a result of the potential costs of non-compliance, businesses
must evaluate their strategies to the compliance requirements
and, generally, involves reviewing the following factors:

 The taxes imposed on the transfer pricing
decision
 The administrative time and expense in-
curred
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