ITR With Transfer Pricing Report
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What is Transfer pricing report
Transfer pricing can be defined as the value which is attached to the goods or services transferred between related parties. In other words, transfer pricing is the price which is paid for goods or services transferred from one unit of an organization to its other units situated in different countries.
Purposes of Transfer Pricing
- Generating separate profit for each of the divisions and enabling performance evaluation of each division separately.
- Transfer prices would affect not just the reported profits of every center, but would also affect the allocation of a company’s resources
Transactions subject to Transfer pricing
The following are some of the typical international transactions which are governed by the transfer pricing rules:
- Sale of finished goods
- Purchase of raw material
- Purchase of fixed assets
- Sale or purchase of machinery etc.
- Sale or purchase of Intangibles
- Reimbursement of expenses paid/received
- IT Enabled services
- Support services
- Software Development services
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Why Organizations need to understand Transfer Pricing
For the purpose of management accounting and reporting, multinational companies (MNCs) have some amount of discretion while defining how to distribute the profits and expenses to the subsidiaries located in various countries.
- The profitability of a subsidiary depends on prices at which the inter-company transactions occur.
- It is important that a business having cross-border intercompany transactions should understand transfer pricing concept.