Transfer pricing is a topic of great importance in the economy and business finance. Its relevance has increased significantly in recent years due to increasing globalization and the expansion of multinational companies.
What are Transfer Prices?
In simple terms, transfer prices refer to the fees established for commercial transactions between related companies, for example, between the parent company and its subsidiaries or between two subsidiaries of the same multinational company. These prices can have a significant impact on the profitability of each company and on the amount of taxes they must pay.
The importance of Transfer Pricing
To understand the importance of transfer pricing, it is essential to consider that multinational companies can move their profits from one country to another, using tax planning techniques to minimize their tax burden. However, this can negatively impact the countries where these companies operate since they reduce the tax base and decrease tax collection.
The objective: Fair and equitable taxes
For this reason, many countries have implemented transfer pricing regulations and requirements to prevent tax evasion and ensure that multinational companies pay fair and equitable taxes in the countries where they operate. These regulations generally require companies to establish transfer prices based on the principle of “market value”; that is, the prices shown for commercial transactions between related companies must be similar to the fees that would be found between independent companies in similar circumstances.
At ORBE, we have experts in transfer pricing matters who can advise you and thus grow your business.