TRANSFER PRICE DETERMINATION METHODOLOGY
Transfer pricing can be based on the difference in cost or market price increases. Environmental influences on the transfer price also raises some questions about pricing methodology. The principle of natural or transfer pricing transactions between companies by supposing that happens between the parties which are not related instimewa in a competitive market. According to the law in the U.S. Income Tax are the methods:
- Method uncontrolled price equivalents
- Uncontrolled Transaction Method of Equivalents
- Return Price Method
- Determination of Cost Plus Method
- Comparable Profit Method
- Profit Separation Method
- Other Pricing Methods
PRACTICE TRANSFER RATES
In practice, several transfer pricing methods used simultaneously. Factors that affect the selection of transfer pricing methods including corporate objectives: whether the goal is to manage the tax burden, or maintain the company’s competitive position, or job evaluation memprromosikan equivalent.
Technology and the global economy itself a challenge for many of the principles underlying the international tax, that every every nation has the right to determine for itself how much tax can be collected from the people and the businesses in the area. However, governments around the world require that the transfer pricing methods on the principle of reasonable price. Namely, multinational companies in different countries is taxed as if they were independent companies which operate naturally from one another. The calculation of fair price is irrelevant because the fewer companies beropreasi this way. The effect of national taxation, cooperation and sharing of information between the authorities tightened the tax on the entire world. Tax competition is also growing. The Internet makes efforts to take advantage of a tax heaven country more easily. Single tax is also used as an alternative to use in determining the transfer price of the taxable income.
It is observed in the formation of organizations that will arise in which the transfer price and its relation to the process of management control systems are:
- Setting goals aligned between divisions and companies. In the sense that the division managers make decisions that will maximize profits by maximizing corporate profit division.
- Setting the autonomy of each division. To be autonomous divisions will awake, in the sense that no top management intervention for freedom of division managers in decision making
- The delivery of power based on the ability to hand the responsibility of the profits. Responsibility can not be delivered profits safely unless there are two conditions that people have handed all relevant information needed to make optimal decisions and profit performance of those who gave measured by how well he makes a trade-off costs or revenues. Therefore, ideally the organization should look for people who are competent in the negotiations and arbitration of transfer pricing.
- Two design decisions including transfer pricing system. First is the sourcing decisions: should companies have to produce your own or buy it from the outside or the supplier? The second is the transfer pricing decisions: at what price the product must be transferred between a profit center? Ideally, more or less the transfer price as market price, with no adjustment for the cost occurred during the transfer of the company.
- If the price competition does not occur, the transfer price may be determined on the basis of cost plus a profit, although some transfer price may be more complicated to calculate and the results are less satisfactory when based on market prices. Transfer fees can be made on a standard cost-plus profit margin, or by using a system of two-step pricing.
- Method of transfer pricing negotiations should be in place and there should be no arbitration mechanism for dispute resolution, but its structure was too difficult to do less management attention that could lead to excessive amount of time the transfer price should be no.
- There are several examples that may occur in complex organizations fully satisfy the transfer pricing system. Like many design options management control, it is necessary to choose the best from some of the action of the almost perfect. Something important is to recognize areas that are not perfect and to ensure administrative procedures are employed to avoid suboptimum decision.