The objectives of establishing transfer prices to form a basis for fair

The objectives of establishing transfer prices to

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The objectives of establishing transfer prices to form a basis for fair evaluation of performance and at the same time minimize one or more types of cost through discretionary transfer pricing often conflict with one another Government Reactions National tax authorities have guidelines regarding what is an acceptable transfer price for tax purposes These national laws often are based on OECD guidelines The basic rule is that intercompany transactions should be made at an “arm’s length price” 平交易 Section 482 of the U.S. Internal Revenue Code Section 482 of the U.S. Internal Revenue Code requires intercompany transactions to be carried out at arm’s length prices - Section 482 gives the IRS the power to audit and adjust taxpayers’ international transfer prices if they are not found to be in compliance with Treasury department regulations. - The IRS also may impose a penalty of up to 40% of the underpayment int eh case of a gross valuation misstatement. U.S. Treasury Regulations establish specific guidelines for…… The “best method rule” requires taxpayers to use the method that under the facts and circumstances provides the most reliable measure of an arm’s length price The tow primary factors to be considered in determining the best method are: -the degree of comparability between the intercompany transaction and any comparableuncontrolled transactions-the quality of the data and assumptions used in the analysis One of five specific methods must be used to determine the arm’s length price in a sale oftangible property. These are: 2

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