Potential Transfer Pricing Pitfalls MNEs Can Avoid to Avoid Sales Tax Consequences on the Total Cost

Potential Transfer Pricing Pitfalls MNEs Can Avoid to Avoid Sales Tax Consequences on the Total Cost

Potential Transfer Pricing Pitfalls MNEs Can Avoid to Avoid Sales Tax Consequences on the Total Cost

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  • On July 10, 2022
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  • Shishir Lagu

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Shishir Lagu
Equity Partner - US Tax

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Potential Transfer pricing pitfalls multinational enterprises can avoidales tax consequences on the total cost.

Today’s businesses have jumped over economic and geographical obstacles, and how! Companies from all sectors have been encouraged to expand abroad through globalization, easy access to foreign finance, and favorable economic policies. Transfer pricing responsibilities are crucial to managing a worldwide firm and should be considered.

MNEs must consider the tax laws and regulations of all the jurisdictions where their business entities are located when planning their tax strategy. Globally, the corporate environment and the corresponding monetary and tax laws are evolving quickly.

Therefore, the dynamic environment increases the pressure on MNEs to continuously align their transfer pricing agreements across jurisdictions and modify their international taxation strategy in response to changes.

The six crucial transfer pricing icebergs that multinationals should avoid to keep the ship sailing are outlined in this article.

  • Make sure the terms of the contracts accurately reflect the nature of the business operations.
  • Business model mapping should take tax and transfer pricing concerns into consideration.
  • Ensure that intercompany transactions are impartial from the standpoint of all relevant jurisdictions.
  • Obtain relevant data from the personnel of all group companies to comprehensively document the business activities and intercompany transactions.
  • Achieve alignment between the transfer pricing report and the other local reporting requirements.
  • Every year, regulations on transfer pricing are reviewed and adjusted to reflect the market and corporate developments. While the article has explored some of the most common transfer pricing difficulties, the applicability of these issues will vary depending on the nature of the firm. MNEs should avoid adopting a “one-size-fits-all” philosophy when creating their transfer pricing policy and instead consider the particular facts and circumstances affecting their company. The earlier MNEs begin developing their transfer pricing plans, the simpler it will be for them to attain tax certainty and adjust to the advancements in transfer pricing worldwide.

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