Transfer price - goods (service, work) for controlled operations to AR Tax Code and "Determination and application of transfer prices" is the price determined according to the rules. But how are comparable operations selected according to these rules? What are the transfer pricing methods? In this article, you will find the answers to these questions.
Selection of comparable transactions for determination of transfer price
In order to determine the transfer price, the process of selecting uncontrolled transactions compared with the controlled transaction is carried out on the basis of comparative analysis.
The following can be used as a comparable uncontrolled operation:
- Similar transactions conducted by a party to a controlled transaction with independent persons;
- Similar transactions between independent persons.
When similar comparable transactions are selected, it is important that those transactions are carried out during the same period as the controlled transaction and that the following indicators are either the same or similar:
- Quality, country of origin, type and other consumption indicators of the goods (service, work) that are the subject of the transaction;
- Terms of the contract, as well as the quantity of goods provided, scope of work or services, terms of performance of obligations according to the contract, terms of payment and delivery;
- The functions and risks of the transaction parties;
- Intangible and tangible assets and rights owned or involved by the taxpayer during the transaction;
- The economic conditions in which the parties to the transaction operate, as well as the geographic location of markets, the presence of similar or identical goods (services, work) in the market;
- Introducing new goods (services, work) to the market, introducing existing goods and their improved versions to new markets and other similar cases in connection with the implementation of the marketing policy.
When the controlled transaction is related to the transfer of intangible assets, when a comparative analysis is carried out to select a comparable transaction, in addition to the above, the following indicators are also compared:
- The market advantage that the acquisition of the transferred patent, license, trademark or other intangible asset will give to the acquirer;
- Any geographic restrictions or prohibitions on the use of rights in the transferred intangible asset;
- Whether the use of the intangible asset is an exclusive or non-exclusive right;
- The fact that the person who has the right to use an intangible asset has the authority to change or improve it.
When the controlled transaction involves intra-group financing, when a comparative analysis is performed to select a comparable transaction, in addition to the above, the following indicators are also compared:
- Solvency and credit history of the party receiving the loan or borrowing, or the party whose obligations are guaranteed;
- Nature and market value of collateral;
- Term of granting debt or credit;
- Currency of the loan or loan;
- Interest rate determination procedure;
- Other factors affecting the determination of the interest rate.
Transfer pricing methods
The following methods are used to determine transfer prices:
- Price comparison method - determining the transfer price by comparing the price of the goods (service, work) received or provided within the controlled transaction with the price within the uncontrolled transaction;
- Subsequent (re)sale price method - determining the transfer price by comparing the resale margin added to the purchase price during the resale of the purchased goods and the resale margin included in the price formed in uncontrolled transactions;
- The method of value collection - determining the transfer price by comparing the price of goods (services, work) provided within the framework of controlled operations to the actual costs incurred for the production of goods (services, work) and the profit margin for uncontrolled operations;
- Profitability method - determining the transfer price by comparing the profit obtained by the person who is a party to the transaction within the framework of controlled transactions with the specific weight applied within the uncontrolled transaction, where the specific weight in his total income, expenses or the total value of his assets is comparable;
- Profit sharing method - when controlled transactions are carried out between enterprises that are members of the same enterprise group, by comparing the specific weight determined within the framework of an uncontrolled transaction, which is comparable to the specific weight of the profit obtained from this transaction by each of the parties to the transaction with the specific weight in the total profit obtained by the group, the transfer determining the price.
Recalculation of tax by applying the transfer price
Comparable in comparative analysis one if a transaction is found, then the transfer price is calculated according to the indicators of that transaction. If some if a transaction is found, then the transfer price is calculated by finding the numerical average of the selected indicators of all compared transactions.
If the price (specific weight or margin) for controlled transactions corresponds to the transfer price (specific weight or margin) for uncontrolled transactions or is within a defined interval, then the calculation of taxes is based on the actual price.
During controlled operations:
If the controlled transaction is related to the provision of goods (service, work) and fixed price from a fixed transfer price or interval:
|
If the controlled transaction is related to the purchase of goods (service, work) and the established price is greater than the established transfer price or interval:
|
Macis Consulting as a company, we provide a number of services to business owners who want to operate both as an individual entrepreneur and as a legal entity. Our company has been providing its business partners with both forms of business creation, accounting services, audit and legal process services for years. Contact us get all the accounting, financial and legal services your business needs.
