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The discussion in this section explains an economic theory behind optimal transfer pricing with optimal defined as transfer pricing that maximizes overall firm profits in a non-realistic world with no taxes, no capital risk, no development risk, no externalities or any other frictions which exist in the real world.
TP-based BEPS tools, [d] shifts profits to the haven by asserting that a process performed in the haven (e.g., contract manufacturing), justifies a large increase in the transfer price ("TP") at which the finished product is charged-out by the haven to higher-tax jurisdictions.
The transactional net margin method (TNMM) in transfer pricing compares the net profit margin of a taxpayer arising from a non-arm's length transaction with the net profit margins realized by arm's length parties from similar transactions; and examines the net profit margin relative to an appropriate base such as costs, sales or assets.
Currently, after the BEPS report has been delivered in 2015, the project is now in its implementation phase, 116 countries are involved including a majority of developing countries. [ 7 ] [ 8 ] During two years, the package was developed by participating members on an equal footing, as well as widespread consultations with jurisdictions and ...
A given fund transfer price will impact the measured performance of business units based on whether such business units are short of funds or have an excess of funds. The key variable which should be considered for setting the fund transfer price is the strategy of the financial institution (i.e. corporate strategy).
The trial judge erred in relying on Singleton and Shell Canada for requiring a transaction-by-transaction approach, but s. 69(2) only requires that the price established in a non-arm’s length transfer pricing transaction is to be redetermined as if it were between parties dealing at arm’s length. If the circumstances require, transactions ...
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Whereas appropriate transfer pricing of tangible goods can be established by comparison with prices charged for similar goods to unrelated parties, transfer pricing of intangible goods, products of intellectual efforts, rarely has comparable equivalents. Transfer prices then have to be established based on expectations of future income. [16]