The Importance of Transfer Pricing

5367 words 22 pages
| The Importance of International Transfer Pricing | Country Case: Argentina | | | |
International Accounting – ACG6255
Professor Robert McGee

Philip Archer |

Table of Contents 1. Abstract 2. Transfer Pricing Overview 3. Defining Transfer Prices 4. Arm’s Length Principle 5. Pricing Methods 6.1. Comparable Uncontrolled Price Method (CUP) 6.2. Comparable Uncontrolled Transaction Method 6.3. Resale Price Method (RPM) 6.4. Cost-Plus Pricing Method (CPM) 6.5. Transactional Net Margin Method (TNMM) 6.6. Profit-Split Methods (PSM) 6.7. Advance Pricing Agreement (APA) 6. Argentina Overview 7. Transfer Pricing Rules in Argentina 8. Conclusion
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Both Section 482 and the OECD guidelines are based on the Arm’s Length Principle, which will be covered later on.
A company may also influence the overall cost of a product by increasing or decreasing the transfer prices of products shipped to high or low tariff countries. However, there are pros and cons that need to be considered. On one hand, the import subsidiary may pay higher import tariffs for higher transfer prices. On the other hand, this import duty cost can be deducted from its overall income so it would eventually pay less income tax. The reverse would occur at the exporting company. Hence an overall analysis must be done. Another factor to be considered is the overall strategy of the company and how transfer prices can help the penetration of a new foreign subsidiary into a new market. The subsidiary’s cost could be extremely reduced if transfer prices are reduced, helping them at the initial phase of market entrance. Eventually, as the subsidiary improves its performance, the transfer price could be raised at market level. Local competitors could retaliate against such movement basing on fair trade guidelines created by international organizations such as the WTO (World Trade Organization) and by anti-dumping agreements set in each country. Another issue


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