Small and mid-tier companies often incorrectly assume that, because they aren’t public companies with high levels of revenue, they aren’t to be transferred or audited. That assumption is wrong.
In an era of globalization and the continued growth of international trade, intracompany pricing has become an everyday necessity for many businesses. What's more, transfer pricing legislation has been steadily gaining momentum around the world. But why has transfer pricing become such a hot tax issue? Keep reading to learn why transfer pricing is becoming a hot tax issue and some transfer pricing tools that can help your organization stay prepared.
Transfer pricing are prices charged between related parties, affecting the allocation of group-wide taxable income (and therefore taxes) among national tax jurisdictions. As a multinational company, identifying opportunities for business optimization can be very important.
It can influence cash-flow streams as, for example, when less corporate tax is imposed by the tax authorities, which can increase the resources a company can use to increase productivity and profitability. It can also influence investment decisions as, for example, when frequent changes of transfer pricing rules could create uncertainty and result in the termination or relocation of a business.
And transfer pricing can also affect key performance indicators as when less corporate tax increases the profitability of a company.
Transfer pricing, which allows for the shifting of income from one jurisdiction to the other, is often viewed as a threat by tax authorities worldwide. No country wants its tax base to suffer because of transfer pricing.
Small and mid-tier companies mistakenly think that because they’re small, their transfer-pricing insurance policy won’t be audited. Even smaller companies can inadvertently violate international tax standards if they're inexperienced with transfer pricing.