It is the price agreed for operations carried out among two or more divisions that belong to the same group of companies, being multinational or not.
In other words, it is the value provided by a business organization to the goods and services rendered to another company with economic association, which may differ from the market value provided in regular transactions with other companies that are not associated with that business organization.
(Regulations of the OECD)
The correct planning of transfer pricing by multinational organizations provide an outstanding save in taxes, as consequence of the application of current tax differences.
Arm´s Length Principle
According to this principle, the prices of associated companies must be those prices provided to companies that are not associated, for the same merchandise or similar in the same conditions for tax purposes.
For the application of this principle, it is assumed that the prices are determined in the market of different countries by the normal behavior of the market.
Article 55 – Faculties of Tax Administration
- Verify if the operations among the parties have been valued according to the principle of free competition.
- Carry out the relevant adjustments when the valuation agreed by the parties implies less tax payment in the country or a difference of imposition.
- It will provide a hearing of the adjustments within the Procedure of Evaluation of Tax Duty by the Administration, established in the Tax Code.
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