Transfer Pricing Documentation: What You Need To Know
Transfer pricing is a method multinational organizations use to distribute profits across their subsidiary and affiliate entities. The practice is becoming more controlled and efficient in order to guarantee that earnings are taxed where value is produced.
Moreover, changes in the global rules and regulations are made to tighten limitations and enhance paperwork requirements for this practice, adding a considerable amount of labour and responsibility to the company tax professional’s role.
In this article, you will learn all about transfer pricing documentation.
What is Transfer Pricing?
The price of commodities, services, and intangibles between related parties is referred to as transfer pricing.
When calculating the price of transactions between related parties, the arm’s length principle must be used.
In order to represent transfer pricing and the arm’s length principle in detail, a thorough document is prepared, which is called a Transfer Pricing Document.
What is Transfer Pricing Documentation?
All of the paperwork, financial information, and business reports taxpayers use to calculate the price of related party transactions prior to or at the time of the transactions with related parties are referred to as transfer pricing documentation.
Is Transfer Pricing Documentation Necessary?
Since 2018, IRAS has made it compulsory for all Singapore companies to perform transfer pricing documentation and provide a thorough transfer pricing document.
It is a good option for companies to outsource accounting services in Singapore to get a thorough and reliable transfer pricing document made by the professionals.
The exact time frame of preparing a transfer pricing document depends on many different factors. Generally, you have to complete the procedure by the time of filing the tax returns.
Therefore, your accounting services should complete the transfer pricing documentation on time.
Goals of Preparing a Transfer Pricing Document
The primary goal of transfer pricing is to distribute revenues throughout an organization’s branches. Transfer pricing will also influence tax computations if a multinational corporation operates in many jurisdictions.
The following are the primary goals of transfer pricing:
1. Taxation Compliance
Transfer pricing has a wide range of effects on taxes and tax compliance. With a good transfer pricing approach, you can balance the tax burden of one division with the tax liabilities of the other.
Increasing your company’s overall tax profits is one of the most significant purposes of transfer pricing. The trades are unaffected by open market variables.
This can help you improve your tax compliance and ensure that you submit all essential paperwork on time.
2. Global Trading
The assessment of the existing situation of international business is another major purpose of transfer pricing. Pricing should be correct and in accordance with import and export restrictions.
A price that is too low might further affect international trade figures. The costs of transfer pricing should be established so that international trade data is not affected.
3. Evaluate Performance
One of the most efficient methods for determining the most accurate value of certain divisions is to use transfer pricing. This might help you make more efficient judgments.
Transfer pricing may aid with performance assessment and management by analyzing the managerial performance of divisions, measuring the contributions of separate entities to the overall profitability of the firm, and estimating the value of each division as an independent unit.
4. Meet Business Goals
The transfer price should be established so that each division’s divisional earnings are aligned with the parent company’s goals. The objective should be to increase the profit margins of the subdivisions without compromising the overall profitability of the parent firm.
5. Economic Progress
When deciding the transfer price, the profitability of both the organization’s divisions should be considered. The same corporation owns both sections. As a consequence, any price may be set for the items, products, and services.
It’s a good idea to keep pricing as close to market prices as possible if you want both divisions’ profit margins to be the same. Transfer pricing must be set up to maximize the company’s overall profitability.
Because there are so many variables to consider when producing transfer pricing paperwork, most businesses opt to enlist the help of expert accounting firms in Singapore.
Thorough transfer pricing documentation can improve the company’s prospects of receiving Singapore tax advantages.
In the end, determining an appropriate transfer price is crucial for large-scale firms since it influences their taxation procedures, import-export restrictions, and a variety of other rules.