Follow Chad Linkedin
Email Chad Email
Financial
Sep 8, 2017

Transfer Pricing For Multinational Entities

Sponsored Content provided by Chad Wouters - Partner, Earney & Company, LLP

For those of you who are involved in the management of a multinational entity, you are most likely aware of the complex tax and legal obstacles and rules that you have to navigate in order to keep the entity running smoothly.

One of the most important challenges relates to transfer pricing - the amount charged for goods, services, capital, intangible property and/or risks transferred between related parties. If there is any common ownership between your business and another business that operates internationally, transfer pricing rules will dictate how to value those goods and services.

Common types of transactions/transfers include:

  • Sales of goods
  • Leases of equipment
  • Providing back office, sales or administrative services
  • Intercompany loans or being a loan guarantor
  • IP license
  • Cost-sharing agreements
Essentially, transfer pricing is involved any time funds are transferred between a U.S. parent and non-U.S. subsidiary, foreign parent and U.S. subsidiary, commonly controlled brother sister companies, and/or U.S. companies, if the entities do not file a consolidated federal income tax return.

The IRS uses an “arm’s-length” principle to determine reasonableness of transfer prices, meaning the amount charged by one related party to another for a given product must be the same as it would if the parties were not related. An arm’s-length price for a transaction should be what the price of that transaction would be on the open market. It is the taxpayer’s responsibility to determine the method that provides the most reliable measure of an arm’s-length result. If the taxpayer is unable to justify the method chosen - or why other methods were not considered - IRS penalties can be severe.

Methods the IRS recognizes include those mentioned under the Organization for Economic Cooperation and Development’s (OECD) Transfer Pricing Guidelines. The OECD is a global organization with 35 member countries whose mission is to promote policies that will improve the economic and social wellbeing of people around the world. OECD methods include Comparable Uncontrolled Price method (CUP), Resale Price method (RPM), Cost Plus method, Transactional Net Margin method, and Transactional Profit Split method.   

The technical aspects related to these methods are too vast to be covered in this posting, but we are always glad to have a conversation with you if you would like to learn more. As tax advisors, we can recommend which method works best for your multinational entity and guide you in the right direction as far as what the next steps in documentation should be.

Chad Wouters, CPA joined Earney & Company in December 2006 and became the tax partner in November 2013. With an emphasis on strategy and planning, Chad works with his clients all year to ensure the most efficient tax strategies are put into place.  Earney & Company, L.L.P.  is a CPA firm that handles tax compliance, consulting and planning as well as audit and other assurance services.  For more information please visit www.earneynet.com or call (910) 256-9995.  Chad can also be reached at [email protected].


 

Ecolarge
Ico insights

INSIGHTS

SPONSORS' CONTENT
Jc300 dsc 2735

Did We Waste This Disaster?

JC Lyle - Wilmington Area Rebuilding Ministry
Mel profilephoto

Influencer Marketing: Tap Into Your Audience On A Budget

Mel Beasley - Wide Open Tech
Drewsmith copiersplus headshot

5 Things To Remember Regarding Your Copier Contract

Drew Smith - Copiers Plus

Trending News

Editor's Note: Could ABBA Change The World?

Vicky Janowski - Sep 27, 2021

Brainstorming AI

Lynda Van Kuren - Sep 27, 2021

Behind The Numbers: Port Of Wilmington Doubles Down On Cold Chain, Cold Storage

Christina Haley - Sep 27, 2021

Raising All Boats: Blue Economy Initiative Seeks To Lure Growth And Innovation

Cece Nunn - Sep 27, 2021

Waterside Wilmington Boat Show Steers Into Port Friday

Jenny Callison - Sep 27, 2021

In The Current Issue

MADE Winners: Supporter Business Category

Big Sky Shop + Studio is the winner in the MADE Awards Supporter Business Category....


Economist To Share Local Prognosis

“The way I’m thinking about the current situation is that it’s like taking a drug if you’re ill,” he said. “There’s the benefit in that it t...


Trailblazing Builder Hangs Up Her Hard Hat

Beth Pancoe, 81, became one of the first licensed female contractors in Eastern North Carolina in 1987 and built a company focused on histor...

Book On Business

The 2021 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

Trying to Grow a Business?
2020 Health Care Heroes
2020 WilmingtonBiz 100