Significance of Transfer Pricing
International tax dynamics have changed substantially over the years as a result of economic challenges and financial crisis. One such landscape was introduction of Transfer Pricing (TP) legislation by many countries across the globe
Transfer pricing is a term used to describe intra-group pricing arrangements amongst the multinational corporations. With increase in cross-border transactions amongst multinational corporations, they often tend to shift revenue/ profits from high tax jurisdiction to low tax jurisdiction and thereby, reducing their overall tax burden of Group. On account of this, Related Party Transaction (RPT) framework and transfer pricing principles is gaining increased attention globally.
Recently, Organisation of Co-Operation and and Development (OECD) with the support of G20 countries have launched Base Erosion and Profit Shifting (BEPS) project to jointly take efforts to increase tax transparency and exchange of information amongst signatories countries. As a part of project, they have introduced 15 Action Plans to tackle tax avoidance and transfer pricing issues. Presently, 135+ countries have became signatories to BEPS inclusive framework and shown the commitment to follow minimum Action Plans.
Traditionally, transactions were carried out by parties locally. With increasing globalisation and liberalisation, cross-border transactions have rapidly grown and thereby, multination corporation felt a need to establish their presence across jurisdiction. This has resulted in tremendous rise in intra-group transactions amongst multinational group.
