Unit 4 IF

1. What is double taxation?

2. Advantages and disadvantages of double taxation.
3. Short note on tax evasion.
4. Short note on transfer pricing.
5. Short note on money laundering.
6. Stages of money laundering.
7. Methods of money laundering.
8. Short note on SWIFT
9. Short note on IFRS
Q.1 What is double taxation
Double taxation is a tax principle referring to income taxes paid twice on the same
source of income. It can occur when income is taxed at both the corporate level and
personal level. Double taxation also occurs in international trade or investment when
the same income is taxed in two different countries
Double taxation is often an unintended consequence of tax legislation. It is generally
seen as a negative element of a tax system, and tax authorities attempt to avoid it
whenever possible
International businesses are often faced with issues of double taxation. Income may be
taxed in the country where it is earned, and then taxed again when it is repatriated in
the business' home country. In some cases, the total tax rate is so high, it makes
international business too expensive to pursue.
Double Tax Avoidance Agreement (DTAA) is an agreement or treaty which is signed
between two countries to relieve taxpayers from paying double taxes in both, the
source country and the origin country.
Advantages and disadvantage of double taxation
Q.2 What is Transfer Pricing
Transfer pricing is an accounting practice that represents the price that one division in a
company charges another division for goods and services provided. Transfer pricing
enables improvements in pricing, brings in efficiency, and helps simplification of the
process of accounting. It also enables savings in costs of manpower by streamlining
processes and methods. Transfer pricing helps in achieving higher profitability and also
focusses on strategizing business operations.
Transfer pricing helps in maintaining a market for the goods manufactured by a
subsidiary with steady margins. It also helps in securing a steady supply of raw materials
or components to the parent and facilitates continuous production. The prices fixed for
transferring goods is generally closer to the fair market price for such goods in the
market
Multinational corporations (MNC) are legally allowed to use the transfer pricing method
for allocating earnings among their various subsidiary and affiliate companies that are
part of the parent organization. However, companies at times can also use (or misuse)
this practice by altering their taxable income, thus reducing their overall taxes. The
transfer pricing mechanism is a way that companies can shift tax liabilities to low-cost
tax jurisdictions.
A few prominent cases continue to be a matter of contention between tax authorities
and the companies involved.
Coca-Cola
Because the production, marketing, and sales of Coca-Cola Co. (KO) are concentrated in
various overseas markets, the company continues to defend its $3.3 billion transfer
pricing of a royalty agreement. The company transferred IP value to subsidiaries in
Africa, Europe, and South America between 2007 and 2009. The IRS and Coca-Cola
continue to battle through litigation and the case has yet to be resolved.
Conclusion
Transfer pricing of goods or services deals with the arm’s length principles of
determining the prices of goods and services bought and sold between related
enterprises. The arm’s length principle essentially states that related enterprises must
fix the transfer price in line with the price that is paid by an outsider for the same goods
or services.