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Posts Tagged ‘transfer pricing’

Starbucks at loggerheads with the taxman

August 9th, 2010 Comments off

Starbucks is getting some press today as a company that is having to justify transfer pricing.  As I’ve mentioned several times on this blog as well as in class, the tax authorities around the globe are increasingly starved for revenue and this type of thing, founded or not, is sure to continue.  There is just too much wiggle room for companies to use transfer pricing methods to escape taxes and in so many cases without an external market it can be impossible to defend a particular price regardless of how vaild/realistic it might be.

In a note to its annual British accounts for the year ending September 27, 2009, Starbucks said: “The company is in discussion with HM Revenue & Customs regarding its transfer pricing policy.”

Read more at:

Starbucks at loggerheads with the taxman – Accountancy Age.

CPAs Provide Expertise for Transfer Pricing Analyses

May 20th, 2010 Comments off

I’ve posted some things previously about the increasing scrutiny taxing authorities are placing on transfer pricing methods used by companies.  Given that countries worldwide are hungry for tax revenue, this is likely to remain a big area of concern for companies as they seek to minimize taxes while satisfying legal requirements in each jurisdiction where they have operations.

Transfer pricing, the process by which multinational companies set arm’s-length prices for cross-border transactions within a corporate group, is complex and consistently ranks as the No. 1 international tax issue facing multinational companies, according to Ernst & Young’s 2009 Global transfer pricing survey. To avoid penalties and potential interest, most tax authorities require taxpayers to prepare annual transfer pricing reports when they file tax returns.

The Journal of Accountancy has a short piece online that looks at the different areas of expertise that are required when calculating and managing transfer pricing and tax obligations.

CPAs Provide Expertise for Transfer Pricing Analyses. Steve Snyder, CPA/CFF, CVA. Journal Of Accountancy (Online). May 2010

CPAs Provide Expertise for Transfer Pricing Analyses.

Veritas Scores a Major “Transfer Pricing” Victory – Tax – CFO.com

December 25th, 2009 Comments off

As mentioned in class, transfer pricing is becoming an increasingly complex and confrontational issue as tax authorities around the globe are struggling to collect as much money as possible.  Companies, meanwhile, are increasingly operating in multiple jurisdictions and have certain leeway with regard to pricing internal transfers, which tax authorities (including the IRS) may disagree with.

CFO.com profiled a transfer pricing case earlier this week involving Veritas, a software firm that is now part of Symantec, and the IRS.

Veritas Scores a Major Transfer-Pricing Victory. The tax court sides with the software company against the IRS. Robert Willens – CFO.com. December 21, 2009

Companies make deals on transfer pricing

November 14th, 2009 Comments off

Here is another in recent pieces I’ve come across that deal with transfer pricing and taxing authorities.  This article explores the expanding use of “Advanced Pricing Agreements” where companies gain taxing authority approval of their transfer prices in advance of using those prices internally.  Theoretically it saves time/money to do this work on the front-end.

Indeed, tax authorities are increasingly insisting that they get their piece of the pie as they step up enforcement efforts over transfer pricing, or the pricing of sales and services between a company’s subsidiaries. These transactions in particular have caught the eye of international tax authorities whose coffers have dwindled as the global economic crisis shrunk the revenue of multinationals and, subsequently, their taxable income.

How to Get on the Same Page as the Taxman. More companies are looking to make deals with tax authorities on transfer-pricing terms to avoid unexpected penalties, tax advisers report. Sarah Johnson – CFO.com. October 20, 2009

Tax Authorities Demand Transfer Pricing Evidence

November 12th, 2009 Comments off

As luck would have it, just as we are beginning to cover transfer pricing in class I came across a new posting on WebCPA that looks at the increased enforcement activity being seen with regard to how companies handle transfer pricing internally.  As I mentioned in class, with tax collections down nearly everywhere around the globe I expect there to be more scrutiny on transfer pricing in the near future.

Tax Authorities Demand Transfer Pricing Evidence.

Ford Strips Vans it Imports to Get Around Tariffs

September 22nd, 2009 Comments off

300px-Ford_Motor_Company_Logo_svgIn Chapter 22 we deal with transfer pricing issues where goods and/or intermediate products are bought/sold between divisions of a larger legal entity.  In that context, we look at times where companies can purposefully set up circumstances that allows them to pay less tax than they would otherwise have to.  A great example of a company doing just that is on the front page of today’s Wall Street Journal.  Ford Motor Company imports some small cargo vans into the United States that are manufactured at its own factory in Turkey.  Because of the way taxes are set up on imported cargo vans, Ford ships the vans with seats and windows so that they appear to be passenger vans (which are subject to a much lower tariff) and then has its employees at a factory on the east coast rip out the seats and windows to turn these vans back into cargo-carrying vehicles.  The seats are then shredded and recycled into landfill cover.

The primary motivation for doing all this is that the entire process is still considerably cheaper than paying the tariff.  But imagine if Ford were just allowed to import the vans intact as cargo vans in the first place?  Wouldn’t there be greater efficiency and less waste?  This is a fine example of unintended consequences that occur when governments engage in protectionism of tariffs and other restrictions.  Companies will find a way around some of these through means that are not the best use of resources for anyone involved.

To Outfox the Chicken Tax, Ford Strips Its Own Vans — Logic Takes a Back Seat — and Windows, As Auto Maker Plays Tariff Games. Matthew Dolan. Wall Street Journal. (Eastern edition). New York, N.Y.: Sep 22, 2009. pg. A.1

Gray Markets and Multinational Transfer Pricing

April 15th, 2009 Comments off

Harvard Business School often publishes longer papers about concepts we cover in class.  I was alerted to one released today that deals with transfer pricing, specifically with regard to “gray market” goods.  Gray market goods are those that are meant to be sold in one geographic region but because shipping and discovery costs are so low they become available in different markets.  An example would be prescription drugs that are made in the USA but intended for sale in Canada making there way back into the US marketplace.  Another would be VW autos meant for sale in Europe being privately shipped to North America for use because doing so is cheaper than purchasing goods through the normal wholesale/retail channels.

Visit this link to read the executive summary and abstract:
http://hbswk.hbs.edu/item/6136.html

Or access the PDF report directly at:
http://www.hbs.edu/research/pdf/09-098.pdf

This paper is very in-depth and beyond the scope of what we cover in class in terms of transfer pricing, but it may be interesting to you nonetheless.  Consider looking it over if you have time as the first several pages are fairly easy reading, but once it dives into the mathematical models and such it gets overwhelming rather quickly.

Taxing Times for Global Business

April 15th, 2009 Comments off

The global downturn of the economy is forcing many governments to pay more attention to things that they probably routinely overlooked in the past.  One of these things is transfer prices used by multinational companies.  Governments are making the case (often legitimately) that companies are manipulating the price charged to foreign affiliates to avoid higher tax rates in one jurisdiction or another.

Law.com looks at the idea of international tax reform in general and transfer pricing in particular at this link:

http://www.law.com/jsp/law/international/LawArticleIntl.jsp?id=1202429899736

Transfer Pricing Audits on the Rise

April 15th, 2009 Comments off

Here are a trio of related pieces about the increase in governmental audits of multinational companies related to transfer pricing practices.  While this may be bad news to the companies that have to deal with more aggressive auditors and/or the resultant fines/penalties, it could be great news for the accounting profession and any of you that want to make a career of these kinds of things.

http://www.accountancyage.com/accountancyage/news/2240138/transferpricing
http://blog.aefeldman.com/2009/04/14/transfer-pricing-audits-increasing-talent-in-demand/
http://www.theinquirer.net/inquirer/news/679/1051679/intel-accused-massive-tax-evasion

Transfer Pricing & International Tax Considerations

April 15th, 2009 Comments off

All of these are about Wal-Mart but could just as easily be about the countless other companies that spend a lot of time/money figuring out how to pay less in taxes.  The first of these articles is the one that I found most interesting and the rest tell the tale of a lengthy legal battle between the affected states and Wal-Mart.  Use your NetDirect userid and password to access these links.