This post is from our members book BUILDING BETTER TAXES. It is a collection of critical, engaging, and amusing articles on the construction of international corporate taxation. It is for everyone who wants to understand the current state of international tax, and for anyone who appreciates good writing seasoned with equal measures of wit and wisdom.” The book covers Tax Policy, Tax Risk, Transfer Pricing and Tax People. This book follows on from the internationally acclaimed TAX COMMANDMENTS FOR BUSINESS providing a practical guide to managing a corporate tax function in industry.
Transfer pricing has been unfairly publicly criticised as a bizarre tax creation. I believe that it is owed to transfer pricing to set this record straight. Transfer pricing is an essential commercial process that must be considered by every group that embarks on multinational activities. Indeed, intercompany trading is the perfect corporate marriage for global business to generate long-term value. Or put another way:
1. Not a day passes in the press, without what I want to address maligned in the headlines they’re publishing. For a few moments now relax, as it’s not really about tax but a love story that needs revealing! I’m going to hypothesise multinational enterprise is like a marriage for global trading, and without being dramatic greater respect for this topic is so dearly “Owed to Transfer Pricing”.
2. Transfer pricing broadly impacts from how business management tracks, the profits that each company should make, to driving trading performance, the local commercial finance and the bonuses we all love to take. It is a director’s duty and legal responsibility,
we vow unto death we will never break, but only for tax compliance there’s a regulatory science on how to divide up that ‘profit’ cake.
3. Or is it really a dark art advisors sketch on a flip chart which can just confuse, bemuse, and appal. Well, transfer pricing put simply is what’s charged inter-company by a business for its products and all.
But shipping between warehouses is like transfers between spouses
as setting the price is difficult to call.So to avoid lives being scarred, let’s explain this “dating” standard: The socially-distanced arm’s length principle.
4. Companies with joint ownership or in a close relationship are deemed effectively “corporately wed” and as with every marriage pact in their best interests they will act so, transfer prices must be computed on what would otherwise apply for like sales to a third party assuming they’re not all in the same bed. But the public still refuses to believe it’s not abusive so, is this approach now divorced and dead?
5. Why do we not simply require apportionment by formula to determine each country’s true profits? Needed for this proposition is global collaboration but there’s fat chance with the likes of Brexits.
Please, don’t be fooled to thus infer you export straight to customer
as permanent establishments are the pits; So, perhaps the arm’s length basis, after loads of analysis, is the best out of a bunch of misfits!
6. The OECD then took steps with fifteen tax actions called BEPS
to give companies a bit of a scare. Whilst A-P-As are your pre-nups and M-A-Ps are just back-ups, C-b-C-R now knows what you have where. Without the timely creation of robust documentation
you risk double taxation, so beware; that’s how we spend our business lives, counselling trade husbands and wives, so, none’s poorer nor richer than what’s fair!
7. Has BEPS 2 now revealed its clause with perhaps too many pillars
putting companies under its tax thumb? For those that face the consumer each country must now assume a virtual tax on digital income, and corporate friends with benefits find that their engagement commits, them all to be taxed at a minimum;
So the fate of arbitrage is sealed with this new level tax playing field
to prevent that descent to the bottom!
8. In preparing for your big day, when an inspector comes your way,
ensure all functions in your supply chain are captured in your local file to make tax auditing facile, as what was once filed you can now explain. But when business waltzed down the aisle it didn’t plan on a master file, and now wonders if the world’s gone insane. Though if that’s how we must marry to show corporate integrity then crack open that bottle of champagne!
9. When finally you tie the knot, you will somehow have to allot
activities, assets, and residual. But no one can be confident which person is significant or what property is intellectual? Then on your wedding night you’ll learn routine functions give great return, but the principle’s life matrimonial. Accordingly, never give up looking for your perfect CUP as in all walks of life that’s the Crown Jewel.
10. Above all, please don’t forget now what was said in your marriage vow: to price fairly all inter-company and live happily ever after without a fiscal disaster all within your published Tax Strategy.
Therefore, a big corporate “thank you” to tax people for all you do
such that business acts tax compliantly; and now, to bring this to an end, whether confused or enlightened, I will leave you with this tax eulogy:
Don’t roll the dice, and jeopardise your transfer price on merchandise as it’s not nice to pay tax twice each year, ‘Cos the press lies to scandalise the transfer price as a tax vice
but this Ode tries to vaporise that fear. So exercise good tax advice to trade supplies full arm’s length-wise which thus implies fair enterprise will appear, To realise the greatest prize of a big rise in your share price for a safe, wise, and immunised New Year!
Find more in Peter Mason’s books at www.taxcommandments.com
Have a question or comment? Contact Peter Mason, Author, UK
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