Market based transfer pricing issues for businesses expanding into China and India

Expanding abroad: Transfer pricing issues

Karen Lynn of KPMG’s transfer pricing team takes a look at on the ground transfer pricing issues that Irish businesses face as they expand operations into China and India.

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Market based transfer pricing issues for businesses expanding into China and India

Market based transfer pricing issues can pose greatest difficulties when groups operating internationally (“MNEs”) try to put in place pricing policies for intra group transactions that meet both transfer pricing guidelines issued by the Organisation for Economic Cooperation and Development (“OECD”), which apply in Ireland and most European jurisdictions, and local transfer pricing analyses. This is often the case in India and China where the local view is that organisations benefit from the location specific advantage of basing their business activities in these large and expanding markets.

What are location specific advantages

Location specific advantages (“LSAs”) that might be associated with the group’s business presence in India or China potentially include both location savings and local market features.

Location savings are the cost savings arising when a MNE relocates some of its activities to a place where labour or real estate costs are lower than in the location where the activities were initially performed.

Local market features are other attributes of the local market (growth rate of economy, population, competition, etc.) that may allow a MNE to obtain a premium price for its products or services in that market.

Learn more about the local view of tax authorities, the current positions of the OECD, China and India on LSAs, and what your business can do to limit the risk of double taxation.

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