Question

“Emerging Markets” on page 364 of the textbook. Based on this and additional concepts presented in the chapter, discuss what you think should be done to address the problems associated with transfer pricing.

Answer 1

Things to be done to address problems associated with transfer pricing are:

• Have written down policy and formula for calculation of transfer pricing from one country to another irrespective of product. It will help to minimize risk and provide clear answers to taxation authority
• Before firming up the transfer pricing, align with internal commercial team and take up their opinion from Audit perspective so that any future questions can be avoided
• Before initiating the process of movement, documents related to transfer pricing must be shown to the authorities for avoiding risk
• The profit allocation method must be clear and as per guidelines of company's financial policy