Valuation and documentation of related party transactions in the light of legal regulations
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In the contemporary world an increasing proportion of world trade consists of transferof goods, intangibles and services within multinational enterprises. The problem oftransfer pricing has assumed greater importance since the time when legal obligation oftransfer transactions documentation was imposed. Transfer pricing might be the instrumentused to maximize the group of companies total profit because the choice of transferprices affects both the division of the total profit among the parts of the company andtax liabilities. Governments take action to ensure that taxpayers do not escape their taxliabilities. To determine tax liability in each jurisdiction, the right price (arm’s lengthprice) has to be applied.In the article the rules of transfer pricing documentation are described and attentionis drawn to the obstacles which are difficult to overcome in practice. Examples of transactionswithin related companies and valuation methods have also been presented, aswell as problems with the application of the arm’s length principle.
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