Transfer pricing has gained significant importance due to globalization and the ever-increasing cross-border trade by businesses. In line with the Organisation for Economic Co-operation and Development (OECD) regulations, Ministry of Finance (MoF) has issued transfer pricing rules outlining how to regulate transactions and document the pricing of transactions between related parties or connected persons. The transacting group entities can use their transactions and arrangements to shift earnings from group entities in higher tax countries to group entities in lower tax jurisdictions, and from high-tax entities to low tax entities, resulting in an overall reduced tax burden for the group.
To avoid any pricing discrepancies, Federal Tax Authority (FTA) may examine the arrangements between the related parties or payments made to the connected persons to determine if the given arrangements / payments were priced at market value. If a transaction is not found to be at arm's length with market value, FTA may perform a transfer pricing adjustment.
Some cases when transfer pricing becomes applicable are:
Analyzing the Ripple Effect: A Comprehensive Impact Assessment for Informed Decision-Making.
Transfer Pricing Policy serves as a vital framework, guiding multinational entities in determining fair prices for intra-group transactions. It establishes arm's length principles, fostering transparency and compliance with tax regulations across jurisdictions.
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