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International Taxation - Transfer Pricing
Finance & Accounting
Pages 8 (2008 words)
In the corporate and financial market, transfer pricing is one of the controversial issue which is being debated at large. In international taxation, transfer pricing has become a heated issue. Corporation on one hand see it as a legitimate tool for tax evasion and tax avoidance, while on the other hand, the regulators and legislators, see it as unlawful and is frowned upon.
For the purpose of the subject under consideration, it is also assumed that the subsidiary company in the aforementioned group structure is a foreign company and the Parent is a local company. When the companies in the group structures are involved in transactions with each other, they put a price on the transaction. This price is termed as the ‘transfer price’. This can further be illustrated with the help of the following example: Company A, the parent company, is situated in USA and its subsidiary company, Company B is situated in UK. Suppose that Company A has outsourced its financial activities to its subsidiary company, which means that Company A does not have any staff which are performing finance related activities (such as preparing financial statement, filing tax return, involved in budgeting etc.) instead the finance department of Company B is performing these activities for Company A and in return is charging a fee. Although the owners of both Company A and Company B are the same, but still one company is charging a fee for performing a particular service to another company in the capital structure. Transfer pricing is not a legal activity in its substance, but its misuse can label it as abusive. ...
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