A. INITIAL CONCEPT
The complexity of the laws and rules that determine the tax for foreign companies and the profits generated abroad actually derived from some basic concepts
a. Tax neutrality is that the tax has no effect (or neutral) of the resource allocation decisions.
b. Tax equity is that taxpayers who are facing similar situations should pay similar taxes and the same thing but on disagreements between how to implement this concept.
2. PROFIT FROM THE SUMBAR taxation abroad,
Some States separti french, costal Rica, hongkong panama south africa, swiss and venezuala apply the principle of territorial taxation and impose taxes on companies that are domiciled in the country that profits generated outside the State. While most countries (including Australia, Brazil, China, Czech Republic, Germany, Japan, Mexico, Netherlands, UK, and Amarika States) to apply the principles throughout the world and impose taxes on profits or income of companies and citizens in it, regardless of the territory of the .
TRANSFER PRICING METHODOLOGY
Transfer pricing can be based on the difference in cost increases or market price. Environmental influences on transfer pricing also raises several questions regarding the pricing methodology. The principle of fair or transfer pricing between firms by assuming that the transaction occurred between parties who are not related instimewa in a competitive market. According to the Income Tax laws in the U.S. are the methods:
A. Method of Equivalent Rates are Not Controlled
Based on this method of transfer pricing is determined by reference to prices used in transactions between companies that equal or equivalent independent company with unrelated third parties.
2. Method of Controlled Transaction Not Equal
This method is applied to the transfer of intangible assets. This method identifies the level of royalty rates with reference to uncontrolled transaction in which the intangible assets of the same or similar transferable. As uncontrolled price method are equivalent, this method relies on a comparison of the market.
3. Method of Selling Price Return
This method of calculating reasonable transaction price that begins with the prices charged on the sale of the goods in question to an independent buyer. Sufficient margin to cover expenses and profit nomal then subtracted from this price for transfer pricing between companies.
4. Method of Determining the Cost Plus
This method is useful when the semi-finished goods transferred between firms or foreign affiliates if an entity is a sub-contractor for other companies.
5. Comparable Profit Methods
This method supports the general view which states that taxpayers are facing a similar situation should also get similar benefits for some period of time.
6. Separation Methods Profit
This method is used if the reference product or the market is not available. This method involves the division of profits generated through transactions with related parties that is special between affiliated companies is based on a reasonable way.
7. Other Pricing Methods
This method can be used if it produces a more reasonable price measure accurately.
3. FOREIGN TAX CREDIT
The tax credit can be expected if the amount of foreign income tax paid is not too obvious (ie when the foreign subsidiary sent most profits come from overseas to the domestic parent company). Dividends are reported here in the parent company’s tax return should be calculated gross (gross-up) to cover the amount of taxes (which are considered paid) plus all foreign levies taxes applicable. This means that as if the parent company receives dividends domestically which includes taxes payable kepeda foreign government and then pay the tax.
Indirect tax credit allowed foreign (foreign income taxes deemed paid) is determined as follows:
(Including all tax levies)
x foreign tax can be credited
Profit after tax foreign income
4. TAX PLANNING IN MULTINATIONAL COMPANIES
In the tax planning of multinational companies have certain advantages over a purely domestic firm because it has greater flexibility in determining the geographic location of production and distribution systems. This flexibility provides the opportunity to utilize their own national tax ataryuridis differences so as to lower the overall corporate tax burden.
The observation of these tax planning issues at the start with two basic things:
a. Tax considerations should never mengandalikan business strategy
b. Changes in tax laws are constantly limit the benefits of tax planning in the long term.
5. VARIABLES IN TRANSFER PRICING
Transfer prices set a monetary value on the exchange between firms that take place between the operating unit and is a substitute for market prices. In general, the transfer price is recorded as revenue by one unit and the unit cost by others. Cross-border transactions of multinational corporations are also open to a number of environmental influences that created the same time destroying the opportunity to increase profits through transfer pricing. A number of variables separti tax rate competition infalsi rates, currency values, limitations on the transfer of funds, political risk and the interests of joint venture partners are very complicated transfer pricing decisions.
6. Tax factor
Reasonable transaction price is the price to be received by parties not related to special items the same or similar in the exact same situation or similar. Reasonable method of determining the transaction price that is acceptable is:
(1) the method of determining the comparable uncontrolled price.
(2) method of determining the resale price.
(3) plus the cost price determination methods and
(4) other methods of assessment rates
7. Factor Tariff
Tariffs for imported goods also affect transfer pricing policies of multinational corporations. In addition to the balance didentifikasikan, mulinasional companies should consider the costs and benefits tambaha, both internal an external maupum. High tax rates paid by the importer will generate the income tax base is lower.
8. Competitiveness Factors
Similarly, a lower transfer price can be used to protect the ongoing operation of the influence of foreign competition is increasingly tied to the local market or other markets. Such competitiveness considerations must be balanced against the many losses that the opposite effect. Transfer rates for competitive reasons may invite anti-trust action by the government.
9. Performance Evaluation Factors
Transfer pricing policy is also influenced by their influence on behavior management and is often the main determinant of company performance.
10. Accounting for Contributions
The management accountant can mamainkan a significant role in calculating the balance (trade-offs) in transfer pricing strategies. The challenge is to mempertahanka global perspective when mapping the benefits and costs associated with determining pricing decisions
11. TRANSFER PRICING METHODOLOGY
In a world with very competitive transfer rates, it will be a big deal when they wanted to transfer pricing resources and services between firms. However, there is rarely a competitive external market for products that are transferred between related entities is special. Problem of determining these costs are felt in the international level, kareba concept of cost accounting is different from one country to another.
12. Principle of Fair
A common type of multinational companies is the integration operation. Subsidiaries are in the same control as well as the sharing of source and destination sama.Kebutuhan to declare taxable income in different countries means that multinational companies must allocate income and expenses among subsidiaries and determining transfer prices for transactions between companies.