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Transfer Pricing Defined

Transfer Pricing Defined. A price negotiated between two related persons A price that is affected by that relationship A price that is different from the price derived from two unrelated parties trading at Arms Length. Why is Transfer Pricing important?.

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Transfer Pricing Defined

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  1. Transfer Pricing Defined • A price negotiated between two related persons • A price that is affected by that relationship • A price that is different from the price derived from two unrelated parties trading at Arms Length

  2. Why is Transfer Pricing important? • Substantial Growth in trade between Multinational Enterprises (MNE) globally • Different Tax rates and rules between States • Tax is a cost of the Total MNE • MNE’s concern is overall Profitability in a worldwide basis

  3. Current Provisions in T&T Laws • Section 10(1)b of the ITA places a limitation of 1% on Management Charges • Section 67 gives the IRD the power to disregard any artificial or fictitious transactions • In 2006 Section 10(1)b increases the limitation to 2% and defines what is Management Charges.

  4. OECD Models • Standard is the “Arm’s Length Principle” • Related Parties referred as Associated Enterprises • Comparability Concept • Pricing Methods

  5. Current Trends • Legislation to deal with Transfer Pricing • Legislation to report Transfer Pricing Transactions • Charging Penalties for non-disclosure • Training of Staff • Changing Procedures to act on information received

  6. Advanced Pricing Agreements • Defined as an Agreement that determines the Price in Advance • Advantages to Tax Administration and MNEs • Disadvantages to Tax Administration and MNEs

  7. Thin Capitalisation • Thin Capitalisation occurs where companies are financed mainly by Debt • Legislation to limit rate and debt to equity ratio

  8. Conclusion re Transfer Pricing • Recognition of the need to deal with Transfer Pricing Issues • Legislate to deal with the issues • Allocate Adequate Staff • Source Expert assistance • Be Cautious Everyone believes the bigger piece of the Pie belongs to them

  9. Conclusion Other • Introduce a Tax that may be easier to administer • Ensure that persons contributing to the MNEs profitability is well compensated. • Encourage government to introduce measures to cause investments in the country and people

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