International Tax

Transfer Pricing

Transfer pricing is the intercompany pricing arrangement that businesses utilize for transactions between related business entities. The transactions may include financial transactions, transfers of intellectual property, services, tangible goods, or loans. Simplified, it is the price that is charged between business units within the same corporation. Transfer pricing provisions require any income that arises from an international transaction between two or more associated enterprises (AE) to be at an “arm’s length price” and comparable to similar transactions between businesses that are not related.

Due to the explosion of international trade, the opening of numerous developing economies, and overlying tax jurisdictions, transfer pricing has had an increased impact on corporate income taxation. In an effort to achieve higher profits and reduce competition, some multinational corporations or transnational corporations (TNCs) have misused transfer pricing by ignoring the arms length principle to effectively allow internal customers to buy more cheaply than outside the organization. Additionally, they will transfer products from one country to another in order for profits to be higher in the country where corporate tax is lower.

Unfortunately, the IRS has responded to these business practices by becoming more aggressive in enforcement within the transfer pricing arena. The IRS has elevated its review of cost-sharing and the transfer of offshore intangibles, automatically mandating audit and examination of any such transaction. They have introduced stricter penalties, new documentation requirements, increased information exchange, and increased the number of audit staff. Your business needs to be aware and prepared if you are involved in transfer pricing transactions.

Esquire Group has broad experience in the area of transfer pricing and we can help you in developing your overall strategies to manage your tax burden and reduce risks by:

• Structuring business objectives with operation strategies
• Identifying strengths in tax controversy and dispute resolution
• Monitoring and controlling risk of transfer pricing adjustments and transaction disclosure
• Establishing advance pricing agreements (APAs)
• Providing litigation support
• Ensuring accuracy of financial reporting