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Important Transfer Pricing in the Expansion of Businesses

Important: Transfer Pricing in the Expansion of Businesses

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According to the web portal “elreferente.es” it was published about the importance of transfer pricing in the design of internationalization strategies. Let’s see:

1. Expansion of startups

According to the specialist Lucila Vidal-Aragón, Spanish startups tend to expand to new geographical markets to consolidate their growth. This expansion process is usually carried out through the creation of subsidiaries, which necessarily involves the transfer of goods and services between group companies.

2. Importance of inter-company group pricing

Considering that two-thirds of the world’s transactions take place between companies of the same group, it is evident that the prices agreed between them play an important role in the amount of taxes that these companies pay in each jurisdiction. 

As the specialist points out, for tax administrations, the objective is to establish a correct allocation of profits between the jurisdictions involved based on a structural analysis of the operations that starts from the functions, risks, and assets that each of the related parties performs, assumes and uses “the functional analysis.”

3. Objective in startups

In the case of startups, the objective in transfer pricing will generally be to attract as much profit as possible to the parent company at the lowest possible tax cost. However, for this to happen, this profit attraction must be justified with a functional analysis that allows it from an economic and tax point of view.

4. Importance of setting transfer pricing policies in startups

Startups need to be aware of the convenience of setting their Transfer Pricing policies ex-ante, as their tax cost structure and the repatriation of capital to the parent company will largely depend on their outcome. 

Thus, the determination of the Transfer Pricing policy should be understood as necessary and mandatory in the management decision-making process and as a fundamental element in the design of international expansion strategies, not only because companies that carry out this type of operations are exposed to significant tax risks, but also because it provides relevant information when analyzing the market situation and knowing the margins of full competition.

Source: El Referente 30/11/21

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