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Offshore Business Transfer Pricing Works In Tax Planning

by ISOG
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Offshore Business Transfer Pricing Works In Tax Planning.

In tax planning, one of the most widely used operations is transfer pricing.

A multinational company, whose manufacturing process is located in a country with an ordinary tax system, sells its products in a wide geographical area. It sets up an offshore company as a branch in a tax haven and then instead of selling its products, with market value of USD 100 and production cost of 50 USD, directly to clients worldwide, sells them to its branch at a transfer price of USD 50.

The branch will then resell the products at the market price of 100 USD. So doing, the company will pay taxes on a 1 euro profit in its country of incorporation, while the remaining 49 USD will be subject to the more favorable tax system which applies to its branch located in the tax haven.

In some cases, it can go far beyond. If the product is sold below cost to the branch, the company will report a loss in its country, thus enjoying, when and if available, incentives for turning around its financial situation.

Offshore Business: How does transfer pricing work? If you wish to know more about the possibilities offered by transfer pricing, you can contact ISOG lawyers.

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