Transfer pricing is the setting of the price and terms for goods and services sold between related legal entities. Tax authorities require transactions between related parties in different tax jurisdictions to be at arm’s length in order to mitigate the opportunity to move income to the lower-taxing jurisdiction.
Section 482 of the U.S. Internal Revenue Code requires that taxpayers document their U.S. transfer pricing policies including economics analyses contemporaneously with the year for which intercompany transactions have occurred. Failure to do so could result in the imposition of significant penalties if the IRS were to sustain adjustments to taxable income. This has placed a burden on multinational entities to determine arm’s length pricing estimates, which includes performing a rigorous analysis under the regulations of each tax jurisdiction.
Under the Sarbanes-Oxley Act of 2002, accounting firms are prohibited from performing certain engagements for its audit clients, including transfer pricing analyses. This has resulted in public and certain private companies turning to independent firms, such as Applied Economics, to assist them with their transfer pricing needs.
Our transfer pricing professionals can assist you in all phases of transfer pricing planning and in avoiding costly defense actions. We can work with you to develop an effective, integrated global strategy for managing the many complex issues involved with moving goods, services and other intangibles across borders.
Transfer Pricing Relevant Experience
Our transfer pricing practice includes domestic and multi-national clients. Many of our clients are U.S. subsidiaries of foreign-owned corporations with corporate headquarters located in South America, Europe and Asia. Examples of our recent transfer pricing engagements include:
- Determined the appropriate arm’s length royalty rate to be charged by a video game designer for sub-licensing the company’s software game technology
- Prepared a benchmarking analysis related to intercompany transactions involving tangible goods, intellectual property, and shared services for a U.S.-based medical device company operating in the neonatal market
- Prepared an intercompany transfer pricing analysis for a U.S. distributor of a Japanese manufacturer of commercial ice machines, dispensers, refrigerators and related equipment
- Determined the arm’s length mark up to be charged by an Alabama subsidiary to its publicly-traded parent, a leading book retailer incorporated in Delaware, for the provision of wholesale and distribution services
- Determined the appropriate arm’s length royalty rate to be charged on intercompany transactions between a subsidiary and its publicly-traded parent, a retailer of sporting goods and related equipment, for the right to use certain trade names, trademarks and logos
- Determined the appropriate arm’s length factoring discount to be applied to the sale of certain accounts receivable by the client, a Fortune 200 electronic manufacturing company, to related entities