TRANSFER
PRICING AND INTERNATIONAL TAXATION
Define the basic concepts of
taxation international
Transactions of trade between two countries or countries
potentially aspects of taxation, it must be governed by the two countries or
the international community in general to boost the economy and trade of the
countries that make such cooperation. This is important so as not to impede the
flow of investment funds due to burden some taxation Taxpayers in both
countries that perform the transaction.
For that we need the international tax policy in terms of
set the tax applicable in a country, assuming that each country could certainly
have been set up in the tax provisions into its sovereign territory. But every
country is free to regulate the taxation of the entity or a foreign national,
international taxation is a form of international law, in which each state must
submit to the international agreement known as the Vienna Convention.
The concept of juridical double taxation and economic double taxation
In a narrow sense, double taxation occurs in all cases
considered taxation a few times on a subject and / or objects in a single tax
the same tax administration. Double taxation can be caused by taxation by a
single ruler (singular power) or by various (layer) single, for example, can
occur in the taxation of the buildings on the resale value (land and building
tax) and income (income tax on rent or profit transfer). Double taxation is
often called economic double taxation (economic double taxation). Double
taxation in a broad sense, according to the state (jurisdiction) the tax
collector, can be grouped into double taxation (1) internal (domestic) and (2)
International.
Understand the concept of linkage with the tax return from
abroad.
Some States like French, Costa Rica, Hongkong, Panama, South africa, Swiss and Venezuela apply the principle of territorial taxation and impose taxes on companies that are domiciled in the country that profits generated outside the State. While most countries (including Australia, Brazil, China, Czech Republic, Germany, Japan, Mexico, Netherlands, UK, and USA to apply the principles throughout the world and impose taxes on profits or income of companies and citizens in it, regardless of the territory of the .
Some States like French, Costa Rica, Hongkong, Panama, South africa, Swiss and Venezuela apply the principle of territorial taxation and impose taxes on companies that are domiciled in the country that profits generated outside the State. While most countries (including Australia, Brazil, China, Czech Republic, Germany, Japan, Mexico, Netherlands, UK, and USA to apply the principles throughout the world and impose taxes on profits or income of companies and citizens in it, regardless of the territory of the .
Understand the reasons for a foreign tax credit.
The tax credit can be expected if the amount of foreign
income tax paid is not too obvious when the foreign subsidiary sent most
profits come from overseas to the domestic parent company). Dividends are
reported here in the parent company's tax return should be calculated gross
(gross-up) to cover the amount of taxes (which are considered paid) plus all
foreign levies taxes applicable. This means that as if the parent company
receives dividends domestically which includes taxes payable foreign government
and then pay the tax. Indirect tax credit allowed foreign (foreign income taxes
deemed paid) is determined as follows:
Dividend payments (Including all tax levies) x foreign tax can be credited + Profit after tax foreign income
Dividend payments (Including all tax levies) x foreign tax can be credited + Profit after tax foreign income
Sensitivity to international tax planning in corporate multinational.
The observation of these tax planning issues at the start
with two basic things:
a.
Tax considerations should never control business strategy
b.
Changes in tax laws are constantly limit the benefits of tax planning in the
long term.
Knowing the variables in the
international transfer pricing.
Transfer prices set a monetary value on the exchange between
firms that take place between the operating unit and is a substitute for market
prices. A number of variables like tax rate competition inflation rates,
currency values, limitations on the transfer of funds, political risk and the
interests of joint venture partners are very complicated transfer pricing
decisions.
Fundamental problems in the transfer pricing method.
1. Tax factor
Reasonable method of determining the transaction price that is acceptable is:
-
the
method of determining the comparable uncontrolled price.
-
method
of determining the resale price.
-
plus
the cost price determination methods and
-
other
methods of assessment rates
2. Tariff Factor
2. Tariff Factor
Tariffs for imported goods also
affect transfer pricing policies of multinational corporations High tax rates
paid by the importer will generate the income tax base is lower.
3. Competitiveness Factors
3. Competitiveness Factors
Such competitiveness considerations
must be balanced against the many losses that the opposite effect. Transfer
rates for competitive reasons may invite anti-trust action by the government.
4. Performance Evaluation Factors
4. Performance Evaluation Factors
Transfer pricing policy is also
influenced by their influence on behavior management and is often the main
determinant of company performance.
5.
Accounting for Contributions
The management accountant can played
a significant role in calculating the balance (trade-offs) in transfer pricing strategies.
The challenge is to defense global perspective when mapping the benefits and
costs associated with determining pricing decisions
6.
Transfer
Pricing Methodology
In a world with very
competitive transfer rates, it will be a big deal when they wanted to transfer
pricing resources and services between firms. However, there is rarely a
competitive external market for products that are transferred between related
entities is special. Problem of determining these costs are felt in the
international level, because concept of cost accounting is different from one
country to another.
7. Principle of Fair
A common type of
multinational companies is the integration operation. Subsidiaries are in the
same control as well as the sharing of source and similar destination. Needs to
declare taxable income in different countries means that multinational
companies must allocate income and expenses among subsidiaries and determining
transfer prices for transactions between companies.
Sources:
1) Choi, Frederick D.S.,
and Gerhard D. Mueller, 2005., The International Accounting - Book 1, Issue 5.,
Salemba Four, Jakarta.
2) Choi, Frederick D.S.,
and Gerhard D. Mueller, 2005., The International Accounting - Book 2, Issue 5.,
Salemba Four, Jakarta.
