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In determining what constitutes a "reasonable amount" under s. 69(2), even the OECD guidelines concede that "transfer pricing is not an exact science". As long as a transfer price is within what the court determines is a reasonable range, the requirements of the section should be satisfied.
The discussion in this section explains an economic theory behind optimal transfer pricing with optimal defined as transfer pricing that maximizes overall firm profits in a non-realistic world with no taxes, no capital risk, no development risk, no externalities or any other frictions which exist in the real world.
The transactional net margin method (TNMM) in transfer pricing compares the net profit margin of a taxpayer arising from a non-arm's length transaction with the net profit margins realized by arm's length parties from similar transactions; and examines the net profit margin relative to an appropriate base such as costs, sales or assets.
Lorraine Eden is Professor Emerita of Management in the Mays Business School of Texas A&M University, College Station, Texas. [2] She also holds a joint appointment as a research professor in the Texas A&M School of Law. Dr. Eden is an expert in the field of International Transfer Pricing, which is the pricing of products that move between subunits of Multinational Enterprises (MNEs).
In addition, transfer pricing may allow for "earnings stripping" as profits are attributed to subsidiaries in low-tax jurisdictions. [219] The Organisation for Economic Co-operation and Development (OECD) has proposed a two-pillar solution to address tax avoidance schemes used by multinational corporations. The first pillar is mostly focused on ...
The Fund Transfer Pricing (FTP) measures the contribution by each source of funding to the overall profitability in a financial institution. [1] Funds that go toward lending products are charged to asset-generating businesses whereas funds generated by deposit and other funding products are credited to liability-generating businesses.
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The Transfer Pricing Guidelines serve as a template for the profit allocation of inter-company transactions to countries. The latest version, of July 2017, incorporates the approved Actions developed under the Base Erosion and Profit Shifting (BEPS) project initiated by the G20.