What is transfer pricing?

What is transfer pricing?

A transfer price is the price at which a transaction is made within a corporate group. Suppose, for example, that a Japanese automotive manufacturer sells its vehicles in Singapore. The company needs to export (sell) the vehicles to its subsidiary in Singapore. The price at which the transaction is made is the transfer price. It might appear than any price can be charged for the transaction because it takes place between a parent company and its subsidiary. However, this is not the case. Depending on the transfer price set for the transaction, the amount of tax paid in each country differs greatly, with potentially serious repercussions for corporate management.

Transfer pricing is deeply related to corporate management

Transfer pricing has a significant impact on corporate management because of transfer pricing taxation. This is what happens under the transfer pricing taxation. Suppose that the amount of the transfer price differs from the price at which the transaction is made with a third-party company which does not belong to the group (arm's length price). In this case, tax is charged by deeming the transaction to be one made at the arm’s length price. Suppose, for example, that a company sells a product to its overseas subsidiary at a transfer price of 120 while it sells the same product to companies outside the corporate group at a price of 180. In this case, the Japanese tax authorities deems the company to have transferred a profit of 60 to the overseas subsidiary, and imposes a tax on the price of 180, which is the same as the price at which the product is sold to a third party. This results in double taxation because the amount of tax paid in the overseas country is not reduced accordingly. This imposes an excessive burden on the company.

Making full use of sophisticated expertise to open up the way for the next generation

This is where the transfer pricing (TP) service team serve our customers as transfer pricing professionals. With the ongoing globalization of the economy, international transactions by multinational corporations are increasingly complicated and it is becoming difficult to set appropriate transfer prices. Making full use of our sophisticated expertise, we set appropriate transfer prices to help ensure the success of the businesses of our corporate customers and help each country develop. This is what we do with our consulting services.