Advantages of Transfer Pricing for Your Organization

What is Transfer Pricing?

Whether you are running a small company or a multinational enterprise, transfer pricing is a highly useful tool for businesses to deal with a variety of international tax issues.

 

It makes sure that your company complies with global regulations and allows you to generate higher profits by availing several tax benefits.

 

In this article, you will learn about all the important aspects of transfer pricing documentation and its several benefits.

Purpose of a Transfer Pricing Document

The transfer pricing document serves the following two main purposes:

a. Generate Profits

Transfer pricing is an essential process in allowing organizations to generate profits for all their divisions and departments. It also provides them with a reliable metric to determine the performance of each department individually.

b. Resources Allocation

The transfer pricing document also facilitates the managers and business owners in allocating resources to the required sections of the company.

Another way to understand the importance and purpose of transfer pricing is to be familiar with the fact that several entities are operating under a single organization.

 

Therefore, multinational organizations can greatly benefit from professional accounting services in Malaysia for preparing transfer pricing documents.

 

It simply means that transfer pricing plays a critical role in the allocation of the profits, especially when organizations have to manage several tax liabilities in different countries in which a company is doing business.

 

As a result, managers can easily set the price among different divisions of the organization.

transfer pricing analysis

Benefits of a Transfer Pricing Document

It is quite evident that the purpose of the transfer pricing documentation is to benefit the organizations in different ways. Following are some of the most important benefits of transfer pricing:

1. Tax Benefits

Transfer pricing provides tax benefits to multinational organizations.

When an organization is able to perform reliable transfer pricing documentation, it gets several tax reliefs, which helps it avoid tax in different countries.

2. Lower Tax Rate

Another benefit of transfer pricing is that it ensures profits for products and services in numerous countries with a lower tax rate, like Malaysia.

As a result, the organization will have no issue in complying with international tax laws, ensuring continuous growth with greater profits.

3. Avoid High Tariffs

When your organization is dealing with the international exchange of goods and services, transfer pricing helps you move the resources from one country to another through reliable channels and avoid high tariffs on such exchanges.

4. Avoid/Reduce Tax Liability

A transfer pricing document is a foundation for determining the overall cost of association between two entities, which helps avoid or reduce tax liability.

There are several principles that accounting services in Malaysia use to determine the arm’s length price of the transactions taking place between two independent parties.

5. Reduce Duty Costs

Duty costs are a considerable challenge in international trading. If you are running a multinational organization, you will have to deal with such charges on a daily basis.

Transfer pricing helps the organizations in reducing the duty costs. Moreover, organizations are able to ship goods to high tariff countries at minimum transfer prices.

Thus, the duty base is comparatively lowered.

6. Reduce Income Taxes

Organizations can also considerably reduce income taxes in different countries that have high tax charges.

This is possible by overpricing the goods they are transferring to countries that have lower tax rates.

Hence, the overall profits are balanced, and businesses can generate higher profits.
writing with blank papers

The Bottom Line

From a taxation perspective, transfer pricing offers various advantages for a company. It takes advantage of different tax regimes in different countries.

 

In certain instances, organizations can even lower their expenditure on interrelated transactions.

 

By engaging the services of an accounting company in Malaysia, organizations that stand to benefit from transfer pricing will have access to professional consultation, including meeting the transfer pricing documentation requirements set by law.

 

For more information, feel free to get in touch with us.