Transfer Pricing

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Category: Business and Industry

Date Submitted: 09/12/2010 02:37 PM

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During President Obama’s campaign, it was apparent that he held strong feelings about how revenues would be raised from international business transactions under his administration in order to promote the tax reforms that were identified as critical domestic policy imperatives. Many American politicians have alleged and continue to allege that foreign enterprises active in the United States paid substantially lower amounts of income tax than comparable U.S. groups. Now that President Obama has been in office for over a year, his administration is facing great pressure to live up to the task of reforming the United States tax code so that the United States can hold businesses accountable and be paid the money it is due. President Obama has plans to shrink a tax gap the IRS estimates may be as high as $345 billion. President Obama has proposed to raise taxes on the overseas profits of U.S. companies and to go after evaders who abuse offshore tax havens. The Obama Administration has fleshed out its proposals for raising approximately $210 billion over 10 years by curbing what it says are corporate loopholes. Among the specific tax loopholes government officials are targeting: the abuse of transfer pricing practices, or the inappropriate shifting of income outside the U.S. President Obama is proposing that companies not be able to write off domestic expenses for generating profits abroad. The overall goal of President Obama’s plan is to reduce the incentive for U.S. companies to base all or part of their operations in other countries. In short, transfer pricing has become increasingly important for both multinational corporations as well as governments seeking to stem the flow of taxation revenue overseas.

Definition of transfer pricing

Transfer pricing refers to the price arrangements of company assets, provision of services- intangible and tangible- intellectual property and funds transferred within an organization that has a foreign subsidiary (Stone, Gary, et...