What is Transfer Pricing
What’s Transfer Pricing?
“Transfer price” means the worth charged for transfer for goods or services. However, as far as tax cares , in common parlance, “Transfer pricing: is taken into account as price charges for transfer of products or service between associate entities.
For example: Let’s assume a UK computer manufacturer group buys the pc microchips from its own subsidiary in India. Now, the quantity the parent UK company pays to its subsidiary in India for the microchips is that the amount of profit the subsidiary unit can represent and wish to pay tax for that.
The price charged by a subsidiary from its company are often arbitrary and dictated and such arrangement may end in avoidance or reduction of liabilities . Accordingly, provisions of “Transfer pricing” given under the tax Act are often wont to actual uncontrolled prices.
Transfer Pricing is nothing but the worth attached to goods or services transferred in between related parties. More precisely speaking, it’s the worth purchased products and services transferred from a unit to other units of a corporation or transfer of products or services between associate/related enterprises.
Concept of Transfer Ppricing
Transfer pricing on the entire cite to prices of transactions between associated enterprises which can be administered under conditions different from those happening between independent enterprises. Transfer pricing refers to the worth attached to transfer of products , services and technology between related enterprises or entities. Transfer pricing provisions are relevant for international transactions also as domestic transactions between associated enterprises.
Transfer pricing are often used as a profit allocation method to ascribe a multinational corporation’s net income (loss) before tax to countries where it does business. it’s a serious tool for corporate minimization also cited as Base Erosion and share (BEPS).
International Transactions Concept
As per section 92B (1) of tax Act 1961 (“Act”), international transactions are referred because the transactions between two or more associated enterprises, either or both of whom being non-residents.
Specified Domestic Transactions Concept
Certain domestic transactions with related parties within Indian borders are termed as specified domestic transactions as coming under the purview of Finance Act, 2012. It promulgates that revenue arising from specified domestic transactions also as any allowance for an expenditure, allocation or interest of any cost or expense arising from a specified domestic transaction shall be conditioned with regard to the arm’s-length price.
Benefits of Transfer Pricing
- Transfer pricing allows companies to scale back duty costs. It enables business entities to shipping goods to the high tariff countries paying the minimum transfer prices. Hence the duty base associated with the transactions becomes low.
- Using the methods of transfer pricing companies reduce income taxes in countries that have comparatively high tax charges by overpricing goods they transfer to countries where they will have the leverage of lower tax rates. during this way, business entities successfully earn higher profit margins.
Therefore, “Transfer Pricing” provisions help to avoid such sorts of situations.