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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.
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 pricing rules in the law and regulation are independent of the transfer pricing rules normally applicable to transactions between related parties. Thus, DISC profits are not dependent on the economic contribution of the DISC, and a DISC need have no substance.
The setting of the amount of related party charges is commonly referred to as transfer pricing. Many jurisdictions have become sensitive to the potential for shifting profits with transfer pricing, and have adopted rules regulating setting or testing of prices or allowance of deductions or inclusion of income for related party transactions.
According to PwC, the full report by the European Commission contained very detailed analysis of the transfer pricing methodology used by Apple. According to the commission, the tax arrangement between Ireland and Apple qualifies as state aid as it meets the European Union's four criteria: [50] There has been an intervention by the State
Exit taxation (also known as an exit fee, exit payment, compensation payment or exit charge) is a payment made for discontinuation of certain economic activities within corporate groups, required in many tax jurisdictions by transfer pricing regulations.
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It is also one of the key elements in international taxation as it allows an adequate allocation of profit taxation rights among countries that conclude double tax conventions, through transfer pricing, among each other. Transfer pricing and the arm's length principle were one of the focal points of the base erosion and profit shifting (BEPS ...