The Importance of Transfer Pricing

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  • Topic: Transfer pricing, Tax, Pricing
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  • Published : April 22, 2012
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The Importance of International Transfer Pricing|
Country Case: Argentina|
International Accounting – ACG6255
Professor Robert McGee

Philip Archer|

Table of Contents
1. Abstract
2. Transfer Pricing Overview
3. Defining Transfer Prices
4. Arm’s Length Principle
5. Pricing Methods
6.1. Comparable Uncontrolled Price Method (CUP)
6.2. Comparable Uncontrolled Transaction Method
6.3. Resale Price Method (RPM)
6.4. Cost-Plus Pricing Method (CPM)
6.5. Transactional Net Margin Method (TNMM)
6.6. Profit-Split Methods (PSM)
6.7. Advance Pricing Agreement (APA)
6. Argentina Overview
7. Transfer Pricing Rules in Argentina
8. Conclusion
9. References

1. Abstract
Transfer pricing has been the main concern for multinational companies around the world as they continue to integrate their activities. The Unite States and the Organization for Economic Co-operation and Development (OECD) have developed regulations and guidelines, respectively, to guarantee that all intra-company transactions fall under the arm’s length principle. Transfer pricing methodologies have been defined and widely accepted by governments all over the world. However countries, like Argentina, have extended and adapted the OECD guidelines to fit their internal market and specific operations that take place locally. On the other hand, multinational companies continue to find ways to be more efficient by integrating operations and relocating income. In terms of taxes, there is a shift from tax coping to tax planning. Ultimately, complete and accurate documentation of transfer pricing is essential to avoid complications in case of a tax audit. 2. Transfer Pricing Overview

The history of transfer pricing initiated in the United States (US) during the first half of the 20th century because of a reorganization movement of American companies that occurred in that period. Consequently, the US was a pioneer in developing guidelines concerning transfer prices that eventually became regulations under its Internal Revenue Code. The Section 482 is an updated version of the first Section 45 which was enacted in 1928. Since then, there have been many updates made to generate what is today the complete section about transfer pricing. The Organization for Economic Co-operation and Development (OECD) did not want to fall short as being the reference for policies and regulation around the world, so it decided to create its own guidelines as a suggestion for its country members that would like to implement transfer pricing regulations. Currently, around 50 countries have implemented transfer price regulations with the help of the OECD guidelines. Even though these guidelines have no immediate legal force, the fact that all of the OECD member states have adopted them without reservations, gives them a high level of significance. Additionally, since the OECD guidelines have a broader use, this paper will make use of their suggestions and recommendations as a research base. According to the OECD, transfer prices can be defined as “the prices at which an enterprise transfers physical goods and intangible property or provides services to associated enterprises” (OECD Transfer Pricing Guidelines, p.19). Nowadays, large corporations take advantage of all the opportunities given in different markets while developing their tax plan. In many cases, these multinational enterprises (MNE’s) make use of intermediary holdings, centralized operating centers, production and assembly lines in countries with cheap labor and finance subsidiaries that may function as internal banks. Even though transfer pricing originated from transactions between associated companies located in one single country, international transfer pricing plays a bigger role today because of its complexity and affects it may generate in the different tax jurisdictions involved. Also, due to globalization...
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