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Transfer Pricing within a Group: a Case Study

Conducting business in the global market place presents MNEs with a myriad of basis. Chief among the risks is that the intercompany prices set by the MNE will be subject to increasing and differing degrees of scrutiny from tax authorities around the globe. Among these complex issues it is possible to frame the transfer pricing phenomenon.
Transfer prices can be defined as “the prices at which an enterprise transfer physical goods and intangible property or provides services to associated enterprises”.
Transfer pricing would then refer to that practice of trading goods and services between related companies belonging to the same group. In particular, the major challenge would arise when determining the price to charge for goods and services from one enterprise to the other (within the same group).
The transfer pricing “problem” (hereinafter “TP”) would arise where corporations have subsidiaries spread around the world, in countries with different tax regimes. These differences would simply mean that companies operating in high-tax regime will pay higher taxes than those located in low-tax regime. This problem would lead companies to use transfer pricing to shift their profit from high tax regime countries to low-tax regime countries, in order to reduce tax burden. The main idea behind this phenomenon is that prices set for intra group transactions should be derived from those prices which would have been applied by unrelated parties in similar transactions, under similar market conditions within the open market.
This is what is normally referred to the arm’s length principle, real landmark of this analysis. The arm’s length principle is the key element upon which all the intra group transactions must rely on. Complying with such principle would simply reduce the possibility of tax advantages or disadvantages that would otherwise distort the competitive positions of the entities.
The main goal of such work is to provide a clear and detailed overview of transfer pricing phenomenon, from the legal, economic and fiscal point of view. Great emphasis will be given in understanding how this phenomenon, considered as one of the most complex fiscal issue companies are nowadays facing, is disciplined both by OECD (Organization for Economic Co-operation and Development) and Italian jurisdiction.
Particular importance will be then given to the necessity of having an adequate TP documentation to rely on. Attention will be then dedicated to the comparability analysis, another crucial aspect of the transfer pricing phenomenon. The research and choice of potential comparable companies would result to be necessary in order to evaluate whether an intra group transaction has been carried out at the arm’s length principle or not. What described from a theoretical point of view will be then illustrated by a practical case Study. The aim of this practical analysis is to understand how a TP analysis must be effectively carried out in order to evaluate whether these transactions have been performed with respect to the arm’s length principle.

Mostra/Nascondi contenuto.
1 INTRODUCTION International trade has risen quickly over the last decade. The role of multinational companies has significantly increased as well. There are several reasons justifying such rapid growth in world trade, ranging from the desire of MNEs to expand their production by taking into account cheaper labor costs, to the increasing demand from developing nations for wider ranges of goods and services from the first world. Another factor behind this expansion is the global increase in the use of technology, particularly computer systems, which has resulted in a vast array of information being accessible in seconds 1 . The global economy allowed international organizations to penetrate multiple markets with the immediate consequence that cross border intercompany transactions within global organizations expand continuously. Therefore, the recent globalization of economic activity and the rise of several multinational enterprises (MNEs) led management to adapt to the new circumstances and to define new operational and financial strategies. This increased availability and ease of exchange of information has assisted many companies in expanding their cross-border trade. A result of this revolution in information technology has been that transactions are being executed with less effort required and at lowering marginal costs. The volume, location or nature of products and services are no longer seen as obstacles to doing business. Increasing use of technology and decreasing transaction costs have meant profit opportunities in product, service and geographic areas that were previously considered unattainable. With such comprehensive and timely data, MNEs are now able to make decisions more effectively and decisively than ever before. The growth of these international companies would display complicated taxation issues for both tax authorities and the international enterprises themselves since the set of tax rules of a specific country cannot be viewed separately but must be framed within a broad international context 2 . Conducting business in the global market place presents MNEs with a myriad of international business issues – both risks and opportunities – that they must face on a daily 1 Adams C., Coombers R., (2003) “Global Transfer Pricing: Principles and Practices”, LexisNexis UK, Deloitte UK, p.2; 2 OECD, (2010), “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration”, preface, p.17;

Laurea liv.II (specialistica)

Facoltà: Economia

Autore: Federico Spadoni Contatta »

Composta da 150 pagine.

 

Questa tesi ha raggiunto 179 click dal 13/05/2015.

 

Consultata integralmente una volta.

Disponibile in PDF, la consultazione è esclusivamente in formato digitale.