Abstract

Transfer pricing is one of the principal international taxation issues of the 1990s and potentially of future decades as well. For corporate enterprises, it can be difficult enough to do business in just one country, but it gets even more complex when they go international. The growth of multinational enterprises (MNEs) creates complex taxation issues for both the tax administrations as well for the MNE. Transfer pricing concerns allocation of income earned within affiliated corporate groups in different countries, which must satisfy tax authorities that they are not evading taxes through the use of transfer pricing. The main problem with transfer pricing occurs when the transactions are not properly identified and analyzed. As a result, this will often lead to complex, lengthy, and expensive inquiries and litigation. The transfer pricing policies of multinationals are being considered in a totally new light by the tax authorities, who are also using new methods and improved knowledge to audit prior years.

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