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Almost all the governments say that transfer pricing should be at fair value (arms length transaction), but why transfer pricing still can be manipulated, either sale at cost, cost plus, or market value?
I never studied P5, how deep need I know transfer pricing for P4? I saw some question got tax heaven and explain a lot of tax implication, very scared.
Dont worry too much about transfer pricing for P4.
The reason companies try to manipulate it is to make sure the profits are shown in a country with low tax rates.
(For example, Starbucks have coffee shops in the UK but pay no tax because they show no profit. One of the reason that they show no profit is that the coffee beans are charged to Starbucks in Switzerland who then charge the UK Starbucks with a much higher price. It means Switzerland Starbucks make big profits and UK Starbucks makes no profit – but tax in Switzerland is lower than in the UK 🙂 )
Why does the tax authority in UK allow less company profit, and therefore less tax revenue, pls? They should say something like “You cannot shift your profit to overseas, but should follow FRS / tax rules – charging price at market value.”
Yes, but the problem is that although beans might be cheap where they are produced, as soon as they get into Europe the price of beans here is higher!
However, because there are a lot of complaints about this, the UK government is thinking of laws that will make sure they pay fair tax in the UK.
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