International

Business

TRANSFER
PRICING
Presented by: Group 9
Đào Thị Hoài Anh
Bùi Phương Anh
 Overview

01 02 03 04
Definition Benefits Risk Example
Definition

Transfer pricing represents the prices for

goods and services that units within a
company charge each other.
For example, a watch factory in Italy may
charge its US parent company
€50/watch. The parent company “buys”
the watches from its own factory rather
than from another manufacturer.
Benefits

Transfer pricing helps in reducing duty costs

by shipping goods into countries with high
tariff rates by using low transfer prices so
that the duty base of such transactions is
lowered.

Reducing income and corporate taxes in high

tax countries by overpricing goods that are
transferred to countries with lower tax rates
helps companies obtain higher profit margins.
 Risk

There can be disagreements within the divisions of an

01
organization regarding the policies on pricing and transfer

Lots of additional costs are incurred in terms of time and

manpower required in executing transfer prices and maintaining
02 a proper accounting system to support them. Transfer pricing is
a very complicated and time-consuming methodology.

It gets difficult to establish prices for intangible items such as

03
services rendered, which are not sold externally.

Sellers and buyers perform different functions and, thus,

04
assume different types of risks
 Example:
How MICROSOFT used transfer pricing to its advantage

Microsoft Purpose Microsoft stated Result

"primarily due to a
Use transfer Companies routinely Microsoft did not 46% (about $ 32 bill) of
higher mix of earnings
pricing, among and legally book specify how did the total sales came
taxed at lower rates in
other things or profit overseas to they employ cash from overseas in the
foreign jurisdictions
method of avail lower tax rate earned aboard but year 2011 , however, pre-
resulting from
booking prices and avoid hefty 35% reinvestment tax profit tripled over
producing and
and sales levy on profit in the could be anything the past six years to
distributing our
between US. from buying an $19.2 billion.
products and services
subsidiaries -> Accumulated office or parking Its US earning have
through our foreign
that lends to $44.8 billion non-US money in the bank. dropped from $11.9
regional operations
the earning and While storing billion to $8.9 billion in
centers in Ireland,
opportunity to reinvested aboard, money overseas the same period.
Singapore and Puerto
report earning accounting in prevented them -> now 68% of the total
Rico, which are subject
in lower tax deferred taxes of from repatriation earning are made by
to lower income tax
jurisdiction. about $14.5 billion. tax. from foreign earning.
rates"
 International
Business

Thanks For
Listening
Presented by: Group 9