Anyone know of any online courses i can do on this topic, preferably not too expensive??
what does transfer pricing mean anyways, can someone plz explain
inter-company sales i.e.- a manufacturing subsidiary transfers finished good to its corporate office for wholesale.
alphabound Wrote: ------------------------------------------------------- > inter-company sales > > i.e.- a manufacturing subsidiary transfers > finished good to its corporate office for > wholesale. You sure it’s not Funds Transfer Pricing (FTP) that allocates company funding costs down to various business lines based upon risk and capital uses from that business line?
what spierce said.
thx but i still dont really understand. so is ftp used to allocate the profitability of different business lines based on how much their funding costs were?
Not an easy concept to explain in short form, but in a nutshell, and using banking as an example: You calculate a cost of funds curve. There are many ways to do this, but lets say you are using swap rates plus a spread you incorporate for additional credit spread, liquidity, capital, ect… So now on an individual product level you compare the rate on your product to the cost of funds curve (using same duration levels) to calculate your product profitability. Loans are profitable so long as you are pricing over your cost of funds curve, and deposits are profitable so long as you are pricing below it. Under normal market conditions profitability is pretty easy to compute, but with the market issues we’ve face in the last 8 months or so, it’s been pretty hard to put together an accurate cost of funds curve.
Transfer pricing in used for inter-department sales. IRS code requires these transactions are done at arms-length and these entries are entered to the financial g/l system (so you can’t shift all your profits to low tax countries). Service Department Allocations (SDAs) are pure mgmt accting tools. SDAs take the expenses of non-revenue producing unit (support units like HR, Legal, Internal Audit, etc.) and spreads them across the revenue producing business units, who are the users or receivers of those goods/services. The expenses are generally spread using a specified run rate depending on the type of good or service (headcount for HR, floor space for Rent, etc.). Some expenses cannot be applied using a run rate so they are swept into a general & admin pool. Then, the G&A pool is the final item to be swept out to the whole corp (not sure how corps decide on an allocation rate for this out though). Still a little confused about funds transfer pricing…I haven’t touched it before
I get so confused reading your explain and example of transferring price. Is there any official documents regulate this. Please show me source for more detail if any. Everyday i read articles and i find out that there are so many action of transferring price in our country. As the articles content, the transferring price is an action of production cost transferring among subsidiary companies in different countries in order to take advantage of income tax saving. Transferring price happen majority in electronic industry. Example: Electronic parent company have many subsidiaries operating all over the globe. One subsidiary in Vietnam bear the income tax rate of 28%, one in Taiwan bear the income tax rate of only 20%. In order to maintain the production, Vietnam subsidiary must import some electronics component from others including Taiwan. And because of Vietnam higher income tax rate, the Taiwan subsidiary will cost very high price for the component exported to Vietnam lead to high material cost in Vietnam. One consequence is that the profit of Vietnam subsidiary will be lower and income tax charged on Vietnam subsidiary lower. If Taiwan subsidiary increase component price by 100,000 usd then its EBIT will rise by 100,000 usd, income tax rise by 20,000 usd. But Vietnam subsidiary’s profit will decrease by 200,000 usd, income tax decrease by 28,000 usd. The action of transferring price help subsidiary save income tax of 8,000 usd. The above case happen many in Vietnam FDI companies but actually it is difficult for Vietnam to fine because there any regulation to prove its transferring price. I just wonder whether it is a typical transferring price or not.
Thu Thuy Wrote: ------------------------------------------------------- > I get so confused reading your explain and example > of transferring price. Is there any official > documents regulate this. Please show me source for > more detail if any. > Are you asking on AF what the Vietnamese income tax code says about transfer pricing? That would be a very obscure piece of information for most AF participants. > > Everyday i read articles and i find out that there > are so many action of transferring price in our > country. As the articles content, the > transferring price is an action of production cost > transferring among subsidiary companies in > different countries in order to take advantage of > income tax saving. Transferring price happen > majority in electronic industry. > > Example: Electronic parent company have many > subsidiaries operating all over the globe. One > subsidiary in Vietnam bear the income tax rate of > 28%, one in Taiwan bear the income tax rate of > only 20%. In order to maintain the production, > Vietnam subsidiary must import some electronics > component from others including Taiwan. And > because of Vietnam higher income tax rate, the > Taiwan subsidiary will cost very high price for > the component exported to Vietnam lead to high > material cost in Vietnam. One consequence is that > the profit of Vietnam subsidiary will be lower and > income tax charged on Vietnam subsidiary lower. If > Taiwan subsidiary increase component price by > 100,000 usd then its EBIT will rise by 100,000 > usd, income tax rise by 20,000 usd. But Vietnam > subsidiary’s profit will decrease by 200,000 usd, > income tax decrease by 28,000 usd. The action of > transferring price help subsidiary save income tax > of 8,000 usd. > > The above case happen many in Vietnam FDI > companies but actually it is difficult for Vietnam > to fine because there any regulation to prove its > transferring price. > > I just wonder whether it is a typical transferring > price or not. The interesting thing about that is that (assuming the Vietnamese leadership isn’t stupid) they have set up a system in which multinational corporations can set up mid-level manufacturing facilities in Vietnam more cheaply than domestic companies. Thus, “Thu_Thuy’s Computer Monitor” company cannot be as profitable as “Thu_Thuy working for Apple Computer Monitor Company”. I guess Vietnamese leadership has decided that the right road to modernization is by having multinational corporations own everything in Vietnam instead of Vietnamese owning everything in Vietnam. “You Americans fight for the biggest nothing in history”. We should have just worked on the tax code and bought the place.
Hi Joey, You are right saying that we should have just worked on the tax code. There are many gaps for foreign companies to refuse tax responsibility in developing country like Vietnam. That is the big problem as the weak policy or lack of management skill i can’t conclude frankly but it is happening. I had been luckily worked for a Japan company located in industrial zone for nearly 3 years from its foundation and I knew some other tips that board of management used to avoid income tax. I don’t know whether it is true or not if i call these actions “transfer pricing”. I would tell you some main complex regulations of tax in Vietnam if you are about invest into Vietnam. There are three main kinds of tax which any FDI business should serious pay attention to. The first is the income tax. In order to attract more FDI flows into the country, the government permit FDI firms the zero income tax rate for the first two years of having taxable income since foundation. And the tax rate will be reduced one a half compared with normal rate during the next five years. Vietnam new normal income tax rate applied to domestic firms is 25 percent (the old rate is 28%) The second is the import tax rate. The rate is changed depend on import goods. The importation of machinery and equipment will get free of import tax. The importation of input material for production will have to pay import tax, but this import tax will be returned in case company export its products oversea. The third is the VAT tax. There are two kinds of VAT rate: 5% and 10%. During time working with Japan company, i took charge of import export activities. I had to stand some difficult in explaining the customs office that this imported item is consumables not fixed asset. My manager told me that “You should explain customer office that this press plate is consumables”. Why does manager required me to do that even thought press plate is a part of press machine and it has been fixed asset? Because if press plate is consumables, they will be charge import tax but returned after finished goods exported. And because press plate is consumables, the branch company in Vietnam reduce its depreciation cost, then profit may be higher some following years. Actually, in the second year of foundation my company had generated profit. Because during some first year of foundation, the company get free of income tax then even it actually get small profit than the next, the reported profit to holding company is still smooth. And off course, board of management in Vietnam may be high appreciated. And another so-call transfer pricing rise when company has demand to import material from its holding company in Japan to manufacture products that will not be export oversea, the price of that material in the commercial invoice is very very low. Then, the imported tax paid is only a small amount. I would say one thing that it is not true the authorities can’t see the problem. They all see the problems but it takes time for them to revise all the illogical legal documents step by step after companies complaint too much. Yes, like American fighting for the biggest nothing in history
Still anyone can answer my question and know any online courses on this ? I don’t expect anyone to, but just incase
I’ve been doing transfer pricing for the past 2 years. As the name suggests, TP entails the transfer of funds between affiliated entities (e.g. parent company and subsidiary) for goods and services provided by one to the other. Consider that more than half of all global trade is conducted within companies, TP is an important and yet very little discussed industry. Governments care because if not done at arm’s-length, bad transfer prices could cost a country $ billions in lost tax revenue. In terms of the nature of the job, it requires knowledge in accounting, economics, valuation, and of course, an understanding of the specific tax/trade regulations. A typical intercompany transaction for goods can be tested by referring to a benchmark of comparable company profit level indicator observable in the same/similar industry that the tested-party operates in. The more interesting stuff entails the transfer of intangibles such as IP, technology, and brand name. As an implication, transfer of intangibles in a M&A, acquisition, or divestiture should also be evaluated and documented, in case if it is ever challenged by the tax authority. In the news, not long ago, I think P&G was fined $3 billion by the IRS for back-date taxes for doing some shady TP in Bermuda (?). TP is robust among developed trade nations such as the US and the EU. China and India are catching up fast, but still have a long way to go. Needless to say, both countries have lost $billions in lost tax revenue, especially China with all the FDI pouring into the country over the last 2 decades.
phBOOM, as I am looking at getting into a position in transfer pricing, would it be ok if i got your email address to perhaps aska few questions. Would be mucha ppreciated. Thanks
in terms of banking, does the transfer pricing dept also set rates for retail products? thx.
This is why tax partners make a lot, I shudder at the thought of transfer prices.