TAX 700_Week 1_ Discussion_ Post 6

Accordinga toa IRCa Secona 482,a transfera pricinga refersa toa thea pricinga ofa transaconsa betweena

controlleda enes.a IRCa 482a invokesa ana "arm'sa lengtha standard"a anda companiesa area requireda toa

chargea thea samea pricea toa theira relateda enesa asa theya doa toa unrelateda pares.a Addionally,a ina thea

absencea ofa arm'sa lengtha pricing,a IRCa 482a authorizesa thea IRSa toa adjusta reallocatea revenuesa anda

expensesa accordingly.

Althougha transfera pricinga coulda relatea toa transaconsa withina thea Uniteda States,a ita isa oena useda asa aa

toola fora shiinga taxa liabilitya toa morea favourablea taxa homes.a Ina thea Facebooka issue,a thea quesona isa

thea valuea ofa thea intellectuala property?a Shoulda Facebooka chargea thea samea toa itsa Europea baseda

enesa asa ita doesa toa thea Northa Americaa baseda companies?a Ona thea surface,a transfera pricinga

eecvelya distributesa earningsa throughouta ana organizaon.a However,a ita isa alsoa eecvea ina reducinga

taxa liabiliesa fora mulnaonala companies.

Transfera pricinga enablesa thea determinaona ofa pricesa fora thea exchangea ofa goodsa anda servicesa

betweena subsidiaries,a aliates,a ora businessesa undera thea samea corporatea management.a

Mulnaonala corporaonsa cana manipulatea transfera pricesa toa movea earningsa toa low-taxa jurisdicons.a

Regulaonsa imposea ana arm'sa lengtha transacona norma thata callsa fora pricinga toa bea baseda ona

comparablea transaconsa carrieda outa betweena unaliateda paresa toa correcta this.

Transfera pricesa withina aa controlleda groupa musta complya witha ana arm'sa lengtha standard,a accordinga toa

Secona 482a ofa thea Internala Revenuea Codea (thea "IRC")a anda thea followinga regulaons.a Thea arm'sa

lengtha criteriaa area deemeda toa havea beena meta ifa thea outcomesa ofa aa controlleda transacona mirrora

thosea thata woulda havea beena obtaineda ifa uncontrolleda taxpayersa hada parcipateda ina thea samea

transacona undera idencala condions.

Transfera pricinga fora corporaons.a Thisa strategya allowsa aa corporaona toa savea moneya ona taxesa toa

redistributea ina thea company,a ita allowsa businessesa toa makea moneya acrossa alla theira divisionsa anda

departments.a Ita alsoa allowsa aa companya toa assessa thea eecvenessa ofa eacha departmenta separately.

Transfera pricinga isa ana accounnga praccea whena onea divisiona ofa aa companya chargesa anothera divisiona

fora goodsa anda servicea provideda (Seth,a 2023).a Ita allowsa fora thea establishmenta ofa pricesa fora thea goodsa

anda servicesa exchangeda betweena aa parenta companya anda itsa subsidiaries.a Companiesa cana savea ona

taxesa bya sellinga aa producta toa aa lowera taxeda subsidiarya ata aa lowera price.a Thea companya ina aa highera taxa

areaa willa seea lessa protsa anda thea subsidiarya ina aa lowera taxa areaa witha seea aa reducona ina COGSa (Seth,a

2023).a Ita hasa noa overalla nanciala impacta ona thea corporaona beforea taxesa becausea onea company'sa

salesa area lowera whilea thea relateda companya hasa lowereda COGS.a Thea dierencea comesa whena thea

companya ina thea highera taxeda areaa seesa aa lowera taxa billa duea toa sella thea itemsa ata aa discount.a Ia thinka

transfera pricinga isa aa praccea thata cana easilya abused.a Whena companiesa sella IPsa toa lowera taxeda

countriesa thea U.S.a doesa nota seea thea benetsa ofa incomea taxesa froma thea IP.a Ia thinka ita cana causea aa

highera taxa burdena fora individuala taxpayersa whena companiesa area movinga higha prota IPsa outa ofa thea

U.S.

References

26a U.S.a Codea §a 482

Seth,a S.a (2023,a Maya 28).a Transfera pricing:a Whata ita isa anda howa ita works,a witha examples.a Investopedia.a

hps://www.investopedia.com/terms/t/transfer-pricing.asp

Worstall,a T.a (2016,a Julya 29).a Whata Facebooka anda applea cana teacha youa abouta transfera pricing.a Forbes.a

hps://www.forbes.com/sites/mworstall/2016/07/29/facebooks-fun-with-transfer-pricing-and-joe-

sglitz-doesnt-understand-apples-tax-at-all/?sh=44c440bc3838

Internala Revenuea Service.a (20150720).a Overviewa ofa IRCa Secona 482.a Publicaona ISO9411_07_01.a

hps://www.irs.gov/pub/int_pracce_units/ISO9411_07_01.pdfa

Seth,a S.a (20230528).a Transfera Pricing:a Whata ita Isa anda Howa ita Works,a witha examples.a Investopedia.a

hps://www.investopedia.com/terms/t/transfer-pricing.asp

Worstall,a Tim.a (20160729).a Whata Facebooka anda Applea Cana Teacha Youa Abouta Transfera Pricing.a Forbes.a

hps://www.forbes.com/sites/mworstall/2016/07/29/facebooks-fun-with-transfer-pricing-and-joe-

sglitz-doesnt-understand-apples-tax-at-all/?sh=531c1e7b3838

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