International Transfer Pricing and Methods

700 Words3 Pages
International Transfer Pricing Transfer pricing methods are designed to minimize tax payments, avoid exchange controls where possible, and to optimize profits in joint ventures. They run counter to governments and seek to prevent what governments view as evasion to tighten laws and regulations. The different methods produce different results that make it hard to compare operational results. With markets and systems different in each country, the contributing factors in each method include foreign exchange risk, economic or operating exposure, and translation or accounting exposure. There are five methods of transfer pricing that consists of traditional methods recommended by OECD of the Comparable Uncontrolled Price (CUP), Resale Price, and Cost Plus methods. The profit based methods, no recommended because they are considered insufficient in comparisons, are the Profit-splits and the Profit comparison (TNNM) methods. CUP compares the price charged in a controlled transaction to the price charged in an uncontrolled transaction in comparable circumstances. This method is reliable when the same product is sold between two associated enterprises. The Resale price is used to determine the price paid by the reseller for product from and associated enterprise and resold to an independent enterprise. It includes all costs of selling, operating, customs duties, and arm's length price. This method is usually applied to marketing operations. The Cost plus method is used to
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