1. Transfer Pricing

2. Transfer Pricing: Background
Globalization
Increased cross border intercompany transactions
Manipulation of transfer prices in order to minimize the tax burden
Tax authorities forced to regulate transfer prices
Arm’s length principle

3. Arm’s length principle
 The prices in intercompany transactions should not differ from the
prices determined by unrelated parties
&
 The profit or income accrued from intercompany transactions
should not differ from the profit or income earned from
transactions between unrelated parties.

4. GlaxoSmithKline
Taxation Blues
 Jan 7, 2004, IRS slammed GSK with a tax claim of $2.7 billion
 Transferred profits to parent Co. (UK)
 GSK America overpaid GSK British for drugs
 Overvalued cost of research in Britain
 Undermined marketing costs in America
 IRS settled $3.4 billion for the dispute

5. Compaq Computer Corporation
Compaq and Transfer Pricing
 In 1999, Compaq US received Tax deficiency notice & Penalties by IRS.
 Compaq Singapore sold PCAs to Compaq US at higher price.
 PCAs' transfer price of Compaq Singapore was 93.9% of Compaq US standard
cost.
 Compaq Asia justified extra costs involved.
 Compaq US paid $2.9 million for setup & unrelated subcontractors.

6. Seagate Technology Inc.
Background
 In 1979, founded to make hard-disk drives for computers.
 In 1981, went public with its IPO.
 In 2000, back to private in a $20 billion stock swap.
 Conducts all manufacturing activities in Scott’s Valley,
Seagate and Transfer Pricing

7. Transfer Pricing Laws in India
 Section 92, by Financial Act, 2002
 Arm’s length price
 Specified method are as follows:
 Comparable uncontrolled price method
 Resale price method
 Cost plus method
 Profit split method
 Transactional net margin method

8. Thank You