What makes transfer pricing a central international tax issue and how does this affect San Diego area businesses? Transfer pricing is the allocation of income or loss between members of a “controlled group.” From the IRS’ point of view, a company is part of a controlled group when the relationship between the two businesses is considered a “parent – subsidiary,” a “sibling” or “brother-sister” relationship or a combination of the two. How income or losses are transmitted between any business entities across a border, be it international or even state-to-state within the Unites States is important as the tax calculations for any business begin with their profits and losses.
Transfers between affiliated entities are required to be conducted “at arm’s length,” as if the two entities were not affiliated in any way. Transfer pricing values must be the same as if the transaction had occurred between competitors or non-associated business entities. This in and of itself is an endless source of audit and consternation for the IRS and other international sovereign tax agencies. “Was the transfer conducted at a fair value?”
2017 brings an even more complex wrinkle to one of the most intricate international tax issues facing Multi-National business Entities (MNEs). There is significant international debate regarding the effective corporate tax rates of different countries worldwide. Apple, Microsoft and other MNEs are facing stiff challenges by the IRS regarding the structuring of income in countries like Ireland to take advantage of a lower corporate tax rate. The seasoned international tax attorneys at Allen Barron would agree that it is advantageous to locate intellectual property, and to position income in sovereignties that reduce tax burden whenever possible.
Countries around the world are carefully constructing domestic tax policy to generate revenue to advance their own economic interests, while MNEs are contantly re-evaluating their Effective Tax Rate (ETR) strategies to reduce the impact of taxes upon global operations. To say these are interesting times would be a significant understatement of the truth.
The same forces that make transfer pricing a central international tax issue are the very forces that expose MNEs to an IRS audit and additional taxation, penalties and interest. What is the best strategy for your multi-national organization? We invite you to contact the experienced international tax attorneys at Allen Barron for a free consultation at 866-631-3470. Allen Barron provides a unique blend of international and domestic tax, legal, accounting and business advisory services under a single-source. This allows us to provide insightful advice on complex issues such as international business structuring, ETR strategies and transfer pricing for our clients in the Southwestern United States.