TRANSFER PRICING: ENSURING LEGAL OPERATIONS WITHIN THE FIRM
The activities of holdings and other commercial agglomerations presuppose a special tax regime. Unlike European countries, Ukraine does not have a loyal tax system for groups of companies. The business practice has developed many ways of tax optimization. Transfer pricing is an effective and proven tool abroad.
WHY DO YOU NEED TRANSFER PRICING?
Transfer pricing is the distribution of profits between the parent firm and subsidiaries. If the organization is dispersed in different countries, then the following strategy will be profitable: sell goods and services to a region with a low tax burden. The participants in such transactions are recognized as interdependent, and the transactions themselves are considered controlled.
Transfer pricing is all about benefit sharing. The holding adjusts to market conditions by “trading with oneself”. A seemingly simple scheme is complicated by the following fact: the tax authorities are aware of intercompany financial transactions.
IMPORTANT: Article 39 of the Tax Code legally establishes the “arm’s length” principle, which controls intra-company operations. The price of transactions between related companies should not differ from the cost of transactions between independent agents. This strongly affects the activities of the holdings. The strict regulation can be easily explained: the state does not want to allow money and other resources to flow abroad.
As a result, there is an urgent need for the correct and legal development of operations within the holding. Specific actions that improve transfer pricing:
- identification and assessment of risks when concluding and executing controlled transactions;
- preparation and execution of documentation for controlled operations;
- tax optimization in the implementation of the transfer.
Due to strong control, there is a demand for the correct interpretation of tax laws. Our task is to provide holding companies and groups of firms with experts who will help organize transfers without problems with tax authorities.
Benefits of Correct Transfer Pricing
Well-organized operations within groups of companies allow:
- measure the effectiveness of the organization as a whole;
- minimize tax pressure;
- allocate the organization’s resources favorably.
The key effect of the procedure is the development of effective tax optimization. Tax planning will bring additional benefits, from increasing the profitability of the business to eliminating legal problems. SION’s mission is to organize transfer pricing, which will increase the profit of the group of companies and avoid problems with tax authorities. It is recommended to get advice from our offices in Kharkiv and Kyiv to develop a detailed strategy.