National borders are becoming less important to how multinational corporations conduct their daily
business. Tax authorities, however, are increasingly aware of how transfer prices may impact tax
income. Penalties for non-compliance, stricter paperwork requirements, and strengthened laws are
frequently implemented. All businesses that engage in cross-border, intra-company transactions must
effectively manage their global taxes because transfer pricing is such a crucial problem.
Multinational organizations may utilize transfer pricing to allocate profits among the various associate
and subsidiary enterprises. However, businesses occasionally can abuse this method by changing their
taxable income, which lowers their overall tax burden. Companies can use tax treaties to move their tax
obligations to nations with low tax rates.
To calculate the amount that need to be charged to another division or subsidiary, for products or
services provided, a transfer price is required. Examples of intellectual property that could be impacted
by transfer pricing include loans, patents, and royalties.
This dissertation's objective is to offer an insight of transfer pricing basic fundamentals, giving a focused
on intra group loan transactions and how multinationals can transfer loans to subsidiaries companies
with arm’s length interest rate (Chapter 2). This dissertation provides a methodology which can be used
from multinationals in their transfer pricing decisions. The main questions that need to be answered are:
What is transfer pricing? Is the loan that being transferred considered a loan or equity and what are the
criteria to identify if it is loan or equity? What is the arm’s length interest rate and how tax authorities
can recognize it as arm’s length interest rate?
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