In today’s world must businesses have operations in more than one country (at least two countries) with less and less pure domestic
businesses. As a result of globalisation, regional and global expansions are the new normal with countless opportunities to multiply
revenues and profits when looking beyond country borders.
Operations in two countries are sufficient for a business to be caught up under the transfer pricing regulations after all transfer pricing seeks to price cross border transactions entered between companies that are part of the same group (also knowns as related parties). Some countries even have transfer pricing regulations for domestic transactions between related parties, particularly, when the country has different tax rates.
One common question from Entrepreneurs, Start-Ups and Small and Medium Enterprises (SMEs) is why should I care about transfer pricing, is all one company? Or, I owned all the companies so transfer pricing doesn’t matter isn’t?
Yes, it does matter, and you should care. Why? Because the Tax Authorities do not see the Group as ‘One Company’. It is the opposite; Transfer Pricing is about pricing transactions based on market prices assuming that two or more companies of the same group are totally independent and separate (this is also known as the arm’s length principle).
More frequent than you think, we come across businesses that are facing big headaches that could have been prevented. Some examples include mismatches of income and expenses resulting in losses in one entity and disproportionate profit in other entity, incorrect pricing of services transactions and mark-ups, implementation of incorrect royalty rates, incorrect management of cost centres entities; the list goes on.
The reality is you can’t escape Transfer Pricing unless your business is operating in a remote area where the ‘Transfer Pricing Tentacles’ has not reached (we cannot think of any place at the moment!). More importantly, not considering transfer pricing can impact businesses income and expenses and result in incorrect assessment of tax liabilities in different countries or double taxation.
The good news is that there are transfer pricing experts with vast experience and willing to help both large MNEs and also Entrepreneurs, Start-Ups and SMEs. You will be surprised how exciting it is to help Entrepreneurs, Start-Ups and SMEs as they are dynamic, always evolving and never stopping.
If you are an Entrepreneur, Start-Up or SMEs don’t disregard transfer pricing and fall under the trap of thinking that transfer pricing affects large MNEs only. Be proactive, and manage your transfer pricing risks since the beginning to avoid future headaches that will distract you from what you do best running a business with passion!
Contact Transfer Pricing Solutions
+61 (3) 59117001
+ 603 2298 7153
Contributed by our Director Adriana Calderon
Adriana is the co-founder of Transfer Pricing Solutions Asia and Transfer Pricing Solutions Malaysia and Lead Partner in Asia. Adriana has extensive international experience with Big Four and mid-tier firms advising multinational companies in the areas of corporate and international taxation across South America, the US, Australia and the Asia Pacific Region.
As a TP practitioner, Adriana has advised companies in the Asia Pacific Region across various industries and in a wide range of projects associated with planning, compliance and dispute resolutions with tax authorities.
Adriana also enjoys teaching and is a regular speaker and facilitator of Transfer Pricing seminars and workshops in Singapore. She is a transfer pricing trainer for the Institute of Singapore Chartered Accountants and Singapore Institute of Accredited Tax Professionals.
Adriana lives in Singapore with her family and is a mom of two energetic boys.
Singapore is often a preferred location for setting up headquarters as the door to conduct business in Asia. The IRAS has released its views on how Singapore HQ's should plan and implement their transfer pricing framework. Want to know more? Read our article with our views on IRAS TP Guidelines for Singapore HQs.
The Malaysian Finance Bill 2020 incorporates transfer pricing-related changes to the current Income Tax Act, 1967 (“ITA”). The changes permit significantly greater authority to the Malaysia Inland Revenue Board (“MIRB”) and re-emphasises the importance of transfer pricing compliance, with effect from 1 January 2021.
The OECD guidance emphasised that, besides interest rates, all terms and conditions of the financing transactions (including the volume of debt) should be tested against the arm’s length principle.