Transfer pricing

Nowdays the transfer pricing issues are becoming more and more important issue for the corporate management, not only because of constantly increasing complexity and variety of the transactions between the affiliate companies but also due to the rising scrutiny of tax authorities.Transfer Pricing

Transfer pricing basically means the supply of goods and services within the group of companies at the arm’s length prices. Transfer pricing law and practice prevents the transferring the profits outside the country, by manipulating the prices in order to benefit from the more favourable tax regime in the other countries or other reasons.

Transfer pricing is associated with a number of difficulties and therefore should be regarded as one of the business risks.  That is why it is important for a businessman to have knowledge about transfer pricing policy.

Also, transfer pricing documentation is an important part of a company’ s internal policies. The taxpayer must be able to demonstrate and to justify the selected transfer pricing method for determining the transfer price, in a case of State Revenue Service audit. The State Revenue Service has the right to compare the prices applied by a taxpayer with arm’s length, and if in transactions with a related person the purchase price is above arm’s length, but the sale price – below, then the taxpayer must adjust its taxable income, thus increasing the payable tax.

Inappropriately applied tax laws may significantly affect the business activity. For example, the taxpayer cannot always compensate the tax paid at the unlawful decisions of the tax authority. Often, the claims of the tax authorities may negatively affect the company, and sometimes even endanger the existence of the company. Therefore, it is important for the company to avoid such disputes on transfer pricing.

AAT publications below provide information about various transfer pricing issues.

Transfer pricing legislation

Transfer pricing essentials (in Latvian and Russian)