The Accountant Sep-Oct 2016√(2)

Business Practice and Development
in a group
transfer
pricing
policy that
fails to
recognize
the effect
that change
will have on
individual
employees
rewarded on
a bonus system
may not bring
about the behavioral
improvements
management wish to
achieve.
Legal matters that fall under the corporate
general counsel’s office should also be
taken into account. In some cases there
may be conflict between the tax planner’s
desire to locate certain functions, risks and
assets in one jurisdiction and the lawyer’s
need to have recourse to the legal system
of another.
Matters such as
intellectual property
protection arising
from cost sharing,
treasury management
issues arising
from centralized
activities such as
cash pooling and
areas of logistics and
inventory management
in co-ordination centre
arrangements all require
careful consideration.
Ultimately, transfer pricing
policy should benefit a company
in achieving its goal and not primarily
designed for tax computation purpose.
Transfer Pricing Methods
Transfer pricing provides a divisional
output valuation where output from one
division becomes the input of another
division within the same organization.
This is often necessary to the operation of
profit or investment centres.Complexity in
implementation arises from the availability
of a number of valuation bases, each with
their own implications for the ways in
which an organization is to be managed.
Transfer prices are necessary to the
operation of performance measurement
based on profit and investment. Transfer
pricing can contribute directly to the
process of departmental performance
measurement and indirectly to the
measurement of product performance.
Transfer pricing methods are
concerned with the alternative means by
which a transfer price can be set and its
impact on organizations gauged. The
Organization for Economic Cooperation
and Development (OECD) provides five
major transfer pricing methods; usually the
appropriate method has to be applied to
arrive at the appropriate arm’s length price
for a transaction.
The OECD transfer pricing methods are:
1. Comparable Uncontrolled Price (CUP)
2. Resale price
3. Cost-plus
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