For multinational businesses, there is perhaps no greater source of confusion and frustration in the tax arena than transfer pricing. Transfer pricing is the arm’s length price charged for good and services between related parties. In cross- border transactions, establishing the correct transfer price is particularly critical because each country wants its fair share of the income tax on the transaction.
Transfer Pricing for Goods and Services
Many businesses think of transfer pricing as the price to charge for the transfer of their product. It is important to remember, however, that transfer pricing also applies to services and the use of intellectual property (IP) – just as you would charge an unrelated party a royalty to use your IP, you must also charge your foreign affiliate.
The Wrong Transfer Price Can Be Costly
In November 2020, The Coca-Cola Company learned first-hand the high cost of failing to establish an arm’s length price. The Tax Court upheld a $3.4 billion IRS assessment for Coca-Cola’s attempt to shift income to low-tax countries by overpaying for the use of the IP owned by its foreign affiliates.
A transfer pricing study can help to mitigate risks by providing penalty protection. Up front planning can maximize both the tax benefits and the cash flow benefits. Join us for a virtual event on Thursday, December 10 at 11:00 a.m. EST to hear Barnes Dennig Principal, Ellen Juram, and KBKG Principal, Alex Martin, talk more about mitigating your transfer pricing risks. With tangible examples and questions from attendees, the presenters will provide timely tax insights for international organizations. You can register for the webinar here.
Questions? Let’s Talk
If you have any questions relating to international tax strategies and transfer pricing, please reach out to our team of international tax experts.
Connect with a member of the Barnes Dennig international tax team or call (513) 241-8313 for answers to questions you have regarding your specific tax situation. We’re here to help.