Intra-related transactions – transactions between related parties or associated enterprises – are a common practice in the globalization of trade. These transactions apply to a parent company and a subsidiary, or two or more companies controlled by a common parent (directly or indirectly and whether or not legally enforceable). When said parties establish a price for the above transactions, they are engaging in Transfer Pricing (TP). TP can be considered to be the most significant tax issue emerging from globalization confronting tax administrations worldwide. This is because related companies are more concerned in their income as a whole rather than as individual corporations, and as such, there is likelihood of manipulating the transfer price by taking advantage of the loopholes in the tax system. As a result, income reported from intra-related transactions decreases. Hence, revenue collection also decreases. And so transfer pricing may really be called transfer mis-pricing! Please note, however, that decrease in the transfer price should not at all times be attributed to manipulation by the related parties. The Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines provide that the tax administrators should not automatically assume that associated enterprises have sought to manipulate their profits as they may truly experience difficulty in accurately determining a market price, in the absence of market forces or when adopting a particular commercial strategy. OECD TP Guidelines are the motherhood guidelines after which most, if not all, TP guidelines of different jurisdictions have been patterned. By way of addressing the Read More …