Transfer pricing is often the subject of disputes between companies and revenue authorities. Even when companies are not under common ownership or control, transfers of profit in order to avoid tax can be attacked. Profits on currency speculation are taxable.

The ‘arm’s length’ rule

In most of the countries in America, Europe and Asia, transactions’ price must be the same as they would be if the companies were completely separate from one another. Not made principally for commercial reasons; able to exploit the fact that the title to goods can be transferred without physical delivery; get advice from an expert.

• Under common control
• More than 50 per cent of another
• Interlocking share ownership

Different countries take different approaches to transfer pricing, and double taxation can arise.

How transfers are valued

• Market value is not always possible to define.
• Assessing the price on the basis of production costs plus a normal percentage of profit.
• Comparing prices with those of other companies in the same business.
• Costing components.

Special prices for design, quality control, delivery, assembly, insurance, management charges and after-sales service may be allowable