Transfer pricing

economic-dictionary

Transfer prices are prices agreed between two companies that are associated, the objective of said price being to transfer, between them, goods, rights or any other asset.

The transfer price, therefore, is the price established for the transfer of goods, rights, as well as another series of assets, between companies that are associated. In order to prevent companies from transferring goods and rights without establishing market prices, and in order to obtain a tax benefit, transfer prices are established. These ensure that the transfers of these assets are made in accordance with the market, and not with perverse objectives that try to avoid paying the corresponding taxes.

Transfer prices can be regulated by an international body, in the same way that they can have a local regulation.

The objective of applying these prices is, first of all, to facilitate the transfer of assets between companies. As well as, secondly, avoid paying less taxes than due.

Why are transfer prices applied?

The objective of applying transfer prices is to facilitate asset transfers between organizations that belong to the same parent.

In companies that have different business divisions for the same production process, transfer prices fix the amount to be paid for supplies, taking into account the market value of said supplies.

In this way, if a textile company, in the same way, is in charge of growing cotton, as well as making it available, already manufactured and manipulated, to the end customer, the transfer prices are those prices that are established for the transfer of assets, between different companies, and throughout the entire production process.

In summary, they are the prices set for the transfer of goods and services between two entities that belong to the same parent.

Transfer prices and their fiscal use

In a market that is not perverse, transfer prices are used to facilitate the transfer of assets between companies that, being subsidiaries of the same company, distribute the production processes in several divisions; each backed by a legal entity.In this way, these companies generate a system to transfer those assets that they wish to transfer between their companies.

However, over time, many companies have made use of transfer prices to set prices that would not be found in the market and, with this, alter the amount on which the tax calculation is performed. to turn off.

In order to avoid this, the different governments have articulated mechanisms to avoid this type of situation with them. To this end, they have especially focused on identifying those situations in which prices do not have the support of the market, so they are artificially manipulated to carry out a fiscal strategy.

The OECD, for example, has techniques for determining transfer pricing. Its objective being to supervise said practice in the countries that make up said organization. In this way, in turn, competition between companies is guaranteed.

Transfer pricing and double taxation

In the same way that happens with a company, there are also situations in which the tax administrations try to collect more than the corresponding amount for carrying out the same activity.

This is the case of double taxation taxes.

To do this, transfer prices try to justify the division of the company, with the objective that, if the company is relocated in different countries, it does not have to pay taxes for which it has already paid in another country. Being the claim of said payment to be attributed to a specific company, the benefit of a subsidiary in a different country.

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