What is Transfer Pricing?
The transfer pricing area of international taxation is becoming more and more complex. Specifically, transfer pricing supports the pricing of goods and services between companies and subsidiaries, which are commonly controlled. Most focus is on transactions that occur between companies in two countries. Tax authorities worldwide are concentrating their efforts on transfer pricing utilized by organizations and the documentation to support the pricing used. However, it’s worth noting that transfer pricing issues can exist in the U.S. domestic context when considering the state income tax implications.
The transfer pricing rules outlined in IRC Section 482 and Section 6662 require that intercompany pricing between a U.S. company, and a foreign affiliate must be based on an “arm’s length” price charged in a similar transaction with an unrelated third party. To support the arm’s length nature of the transaction and avoid transfer pricing penalties, a company must provide documentation to substantiate its transfer pricing methodology.
The rules further state that contemporaneous documentation should be a transfer pricing study, including benchmarking comparable transactions. Most countries follow the Organization for Economic Cooperation and Development (OECD) transfer pricing requirements, which is similar to the U.S. IRS regulations.
McGuire Sponsel’s approach to transfer pricing documentation starts with a complete understanding of the taxpayer’s fact pattern, including operational goals, cash repatriation strategies, and legal organization structure. Then, we consider supportable transfer pricing methods to obtain the lowest global effective tax rate for the organization.
Contact our Global Business Services team to learn more about how a partnership with McGuire Sponsel can deliver transfer pricing documentation and analysis that adds value to your clients.
Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.