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7 Common Transfer Pricing Disputes To Look Out For

If you are running a business in different countries and regularly involved in international business operations, then you are likely to be familiar with the importance of a transfer pricing document. It is used to evaluate the allocation of income in the supply chain of multinational organizations, which are operating in various countries with different taxation rules and regulations.

 

A transfer pricing document has a significant impact on different tax matters, payroll management, and risks associated with intangible property.

 

In this modern and globalized era, the concept of transfer pricing document has become extremely important because international watchdogs and audit organizations are involved in a thorough inspection of the companies. As a result, multinational companies are vulnerable to numerous potential transfer pricing disputes.

 

Keep reading this article to learn about the seven most common transfer pricing disputes that you should look out for:

1. Company Restructurings

Most of the companies and businesses are continuously evolving and restructuring in one way or another.

 

Business restructuring technically means transferring the assets, functions, and business risks from one legal entity to another.

 

In other words, it includes different types of international transactions. As a result, it can become a major issue in transfer pricing documents and increases the risk of creating a serious dispute.

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2. Charges

Multinational companies have to pay a significant amount of charges and fees in international business operating. According to the rules of the transfer pricing documentation, the companies and legal, operational entities have to pay such charges under the management fees.

 

It means the management cost of the multinational groups and their entities keep increasing significantly due to the charges involved in the transfer pricing document.


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However, a common issue in terms of the management fees is that many countries and tax authorities are not willing to provide deduction in operational and management charges because it lowers the overall taxable profit and impacts the tax collection process. Countries like China and India do not prefer deduction in the management charges, and, therefore, transfer pricing disputes can arise.

3. Intangible Assets

In the transfer pricing document, the controlled transaction mostly involves intangible assets. As a result, tax authorities pay special attention to these transactions. The reason for this extensive inspection is that in comparison to fixed assets like the factors and inventory, intangible assets are quite easy to transfer in a multinational enterprise.

 

Therefore, many organizations choose to allocate the revenue of intangible assets to their legal entity operating in a country that has a lower tax rate. International tax authorities do not encourage this practice in organizations because many experts even consider this type of profit shifting to be unethical and illegal. As a result, you are likely to face disputes while transferring intangible assets.

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4. Jurisdictional Matters

The transfer pricing document greatly varies on the basis of the local rules and regulations in different countries. As a result, multinational enterprises must consider a variety of jurisdictional matters while operating in different countries to ensure maximum compliance with international law.

5. Double Taxation

The concept of double taxation arises when companies have to pay taxes on the same profits in two different countries without getting any kind of relief from any one of the countries in which the organization or its entities are operating. In such a situation, a serious transfer pricing dispute can arise if the tax authorities try to exercise their right of imposing tax within the territory of a specific country.

As a result, confusion can arise related to which country and tax authority have the final say in taxing the income of the multinational enterprise. Such issues can be avoided by getting the help of a professional accounting firm in Singapore.

6. Resources Allocation

The major benefit behind the transfer pricing document is that it allows organizations to transfer their resources to countries with low tax rates and get significant tax concessions to increase their profits.

 

However, there are certain trade and tax barriers that multinational enterprises have to consider during this process because they can impede the overall process of resource allocation and end up significantly increasing the transactional cost of the companies.

7. Valuation

Transfer pricing documentation is a highly useful and reliable tool for solving a variety of business-related problems. It allows companies to obtain thorough financial information that can help them in making more reliable and effective strategies for the success of the business. Moreover, these business metrics can be used for business valuation.

In a Nutshell

These are some of the common transfer pricing disputes that you should look out for in the transfer pricing document. You can avoid these issues and many other transfer pricing challenges by hiring the professional and competent services of an accounting firm in Singapore that are well-familiar with the best practices of this industry and offer reliable results.

 

For more information, feel free to get in touch with us.

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