Transfer Pricing as a subject means undertaking global international transactions between the related parties (we call it associated enterprises), at a value which is as per the market conditions (Arm’s Length Price), so that the profit allocations between the countries is fair and appropriate. Due to the close relationships, there could be certain influences on the profitabilities when we talk about an MNE group and therefore, the law is an important aspect in a country’s economy to protect its tax base.
So how is global transfer pricing different from transfer pricing?
When transfer prices are seen only from one local tax jurisdiction’s point of view, it is called as legislative transfer pricing, i.e. Local transfer pricing; however when the transfer prices are arranged in a manner where global transaction management is involved, it takes in to account more than one jurisdiction and such an exercise takes a form of a larger strategic management in the form of global transfer pricing.
What are the benefits of Global Transfer Pricing?
Global Transfer Pricing is the management of transfer pricing globally, which leads to visibility on the entire world-wide structure and international prices of an MNE group. It provides control and bird’s eye view of the intercompany transactions undertaken globally. It is easier to compartmentalise transactions and implement policies on intercompany dealings through global transfer pricing. Standard terms and conditions, streamlining of business activities, globally accepted transfer pricing structures are some of the characteristics and benefits of global transfer pricing management.
How should management look at global transfer pricing?
International management should look at Global transfer pricing as an extended arm of the global supply chain. It is assigning right values to the functions, assets and risks embedded in the global supply chain and then transforming such supply chain in the tax-friendly documentation. It also helps management to centralise its function and provides greater control on the global operations. Once an appropriate model is implemented, it could stay on for a longer period as the models are quite agile to the way businesses are undertaken.
How should a business take it ahead?
The CFO or the tax heads should reach out to qualified transfer pricing specialists. Accountants and lawyers who might be auditing the company accounts and also representing the company in other matters, may not possess the right set of experience to advise on a transfer pricing situation at a global level, as the topic needs a subject matter expertise.
In case you need any further thoughts on global transfer pricing, please feel free to reach out to TransPrice, who are transfer pricing specialists in the domain of global and local transfer pricing. You can write to them at firstname.lastname@example.org.