Transfer Pricing: Company’s policy is a critical part of its overall strategy and is frequently the subject of heated debate. This is because transfer pricing is, by its very nature, a difficult subject to understand. But with a little explanation can be easy to understand, and can help a company increase its bottom line.
Transfer pricing is a process that determines the prices for goods and services bought and sold within a company. A company’s transfer price is the price at which it sells its products to its subsidiaries or the price at which it buys products from them.
Transfer pricing is important to a company because it helps the company minimize its tax liability and can even help reduce costs. It is a process of setting the prices for goods and services bought and sold between different divisions of a business. For example, if a company sells products in the United States and Canada, it might set different prices for each country based on production costs and other factors.
Transfer pricing services is a business strategy that helps companies manage their costs and profits. It is important for businesses with international operations to create a TP policy that helps them avoid problems.
The Organisation for Economic Co-operation and Development (OECD) Inclusive Framework on Base Erosion Profit Shifting (BEPS) require adherence to four (04) minimum BEPS standards, which are:
- Action 5: Countering harmful tax practices.
- Action 6: Countering tax treaty abuse.
- Action 13: Country-by-Country reporting.
- Action 14: Improvement in dispute resolution mechanisms.
Being a member of the OECD, and in response to OECD’s Inclusive Framework on BEPS, the UAE introduced the Economic Substance Regulations (UAE ES Regulations) ensuring that UAE entities carrying on certain relevant activities report profits (in actual) that are commensurate with the activity undertaken in UAE.
The UAE, by introducing the UAE ES Regulations, re-affirmed its alignment with the OECD framework. Thus, being a member of the Base Erosion Profit Sharing (BEPS) framework of the OECD, adhering to transfer pricing rules and requirements have been one of the most important things on the agenda of the UAE in order to strive to be a cooperative jurisdiction for tax purposes.
Another one of its kind are the CBCR (Country by Country Reporting) Regulations, which are in line with the legislations pertaining to tax compliance and as are broadly consistent with the OECD model legislation. These regulations apply to UAE entities that are resident for tax purposes and are members of a multinational group having annual consolidated revenues of AED 3.15 billion or more (in line with the OECD prescribed threshold of Euros 750 million) in the preceding financial year.
Therefore, a company having a presence that is global would be required to put in place their transfer pricing mechanism and show evidence for the same.
Enterprise House offers its clients a range of services covering the entire cycle of the decision-making process: Identifying potential BEPS risks and opportunities resulting from changes to the international tax environment.