TaxationLesson 2 of 4 in the course Corporate tax and planning

Transfer Pricing: Arm’s-Length Rules, Methods, and Global Tax Administration

5 flashcards · 5 quiz questions · 5 match pairs · 4 fill-in sentences · English

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Summary

Transfer pricing refers to the rules and methods for setting prices in transactions within and between enterprises under common ownership or control. A multinational group may, for example, sell goods, provide services, license technology, or lend money between its members. A price charged in one of these related-party transactions is an intragroup transfer price.

All flashcards

Controlled transaction
A transaction between parties connected by common ownership or control.
Arm’s-length range
A range of results supported by comparable dealings between independent parties.
Tested party
The party selected for a profitability analysis, generally because its functions and risks are easiest to compare reliably.
Platform contribution
An existing asset or right contributed to a cost-sharing arrangement.
Profit split
A method that divides combined profits between related parties, often considering their contributions.

Quiz questions

  1. Which comparability factor considers whether a company is entering a market or prioritizing customer growth over immediate profit?Answer: Business strategy
  2. Under a best-method approach, how should a transfer pricing method be selected?Answer: Choose the method expected to produce the most reliable arm’s-length result.
  3. In a cost-sharing arrangement, how should participants generally bear development costs?Answer: In proportion to their reasonably anticipated benefits.
  4. What is the central purpose of an advance pricing agreement?Answer: To agree in advance on a methodology for testing transfer prices.
  5. How does formulary apportionment allocate a multinational company’s combined profit?Answer: By applying an agreed formula based on factors such as sales, employees, or assets.

Based on the Wikipedia article Transfer pricing, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.

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