Transfer Pricing Defined

• A price negotiated between two related persons • A price that is affected by that relationship • A price that is different from the price derived from two unrelated parties trading at Arms Length

Why is Transfer Pricing important?
• Substantial Growth in trade between Multinational Enterprises (MNE) globally • Different Tax rates and rules between States • Tax is a cost of the Total MNE • MNE’s concern is overall Profitability in a worldwide basis

Current Provisions in T&T Laws
• Section 10(1)b of the ITA places a limitation of 1% on Management Charges • Section 67 gives the IRD the power to disregard any artificial or fictitious transactions • In 2006 Section 10(1)b increases the limitation to 2% and defines what is Management Charges.

OECD Models
• Standard is the “Arm’s Length Principle” • Related Parties referred as Associated Enterprises • Comparability Concept • Pricing Methods

Current Trends
• Legislation to deal with Transfer Pricing • Legislation to report Transfer Pricing Transactions • Charging Penalties for non-disclosure • Training of Staff • Changing Procedures to act on information received

Advanced Pricing Agreements
• Defined as an Agreement that determines the Price in Advance • Advantages to Tax Administration and MNEs • Disadvantages to Tax Administration and MNEs

Thin Capitalisation
• Thin Capitalisation occurs where companies are financed mainly by Debt • Legislation to limit rate and debt to equity ratio

Conclusion re Transfer Pricing
• Recognition of the need to deal with Transfer Pricing Issues • Legislate to deal with the issues • Allocate Adequate Staff • Source Expert assistance • Be Cautious Everyone believes the bigger piece of the Pie belongs to them

Conclusion Other
• Introduce a Tax that may be easier to administer • Ensure that persons contributing to the MNEs profitability is well compensated. • Encourage government to introduce measures to cause investments in the country and people

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