Transfer pricing (from the English Funds Transfer Pricing, abbr. FTP) is a mechanism for selling all types of goods to related parties (usually within holdings) at special, intra-company, non-market prices. Thus, a more rational and profitable redistribution of the profit of a group of persons in favor of those who are under conditions of lower taxation is possible (as a rule, this implies a stay in other states). Such a tax planning scheme is necessary to minimize the costs associated with mandatory tax deductions. Transfer prices are controlled by the fiscal authorities of the state.
Transfer pricing in the form of a detailed system appeared in the USA in the mid-60s, then this method of pricing policy spread to other countries of the world. Since the beginning of 2012, special legislation has been in force in Russia to regulate transfer pricing. Until 2012, it was regulated by the Tax Code.
Three methods are distinguished by which transfer prices are determined:
- uncontrolled (comparable) price method;
- resale price method;
- cost-plus-profit method.
When using the first method, prices are set according to the price list. With this method, tax authorities are entitled to charge taxes and penalties if the prices of goods are lower or higher than more than 20% of the market prices for similar goods.
The second method is used in cases when, on the eve of the sale, goods are transferred between the parties. Thus, it is possible to reduce the resale price by the amount of the margin, due to which the costs of the seller are covered.
The third method is used in cases where it is impossible to use the two previous ones. In this case, to determine the market price, all direct and indirect costs of the seller are taken into account, they are added the average margin inherent in this area of activity. This approach necessarily requires the preparation of planned estimates for all goods (services).
Transfer pricing is typically applied for the following two reasons:
- if it is required to rationally redistribute financial resources within the holding;
- when it is possible to minimize additional payments and, thus, optimize taxation. However, it should be noted that such “optimization” is often regarded by the state rather as an attempt to evade the good faith fulfillment of tax obligations. On the other hand, taxpayers have every right to use a similar tool to achieve more profitable economic results of their own activities.
The use of this type of pricing for large holdings and corporations is very advantageous, since it allows you to organize almost a team structure in a market economy. So it is possible to concentrate profits in a single center, and then redistribute it taking into account the needs of the companies included in the holding. It is not rational to prevent the redistribution of own funds of large economic entities. It is only possible to regulate this sphere in order to prevent budget losses.
Thus, transfer pricing, in its essence, is a rather ambiguous phenomenon, which led to close attention to it from the state. Due to the need to improve pricing principles for tax purposes, on July 18, 2011 the RF law was signed on amendments to a number of legislative acts. Particular attention was paid specifically to transfer prices. The Tax Code of the Russian Federation was amended to article 40, restricting the fluctuation of transfer prices within +/- 20% of the prices that are provided for by market pricing.
The norms of the law are fully consistent with international principles of regulating the sphere of pricing. It was based on the Transfer Pricing Guidelines adopted by the Organization for Development and Economic Cooperation Committee.