GROUPS OF TRANSACTIONS IN TRANSFER PRICING

We have presented these topics “What is transfer pricing”, “Forms of transfer pricing”, “Definition of related parties”, and many other topics relating to transfer pricing. Today we will present the topic “Groups of transactions in transfer pricing”.

There is an obvious problem:

• Enterprises will take advantage of gaps and limitations in tax policies in countries where they are operating in production and business to shift profits to countries and territories with lower tax rates.
• Tax authorities must issue regulations in order to collect the highest tax in their own country and still keep investors.

It can be interpreted that the one side will perform "erosion the tax base", and the other side will prevent "erosion of the tax base". However, both parties have the same research object: “Groups of transactions in transfer pricing”. Here are 4 groups of transactions that frequently occur in transfer pricing, these groups of transactions can sell and buy at high or low price, not according to market price, depending on the intention of the transfer price of each enterprise.

Group 1: Transactions relating to tangible assets

• Purchase and sale of goods and finished products.
• Purchase and sale of raw materials and fixed assets.
• Purchase and sale of tools and equipment.

Group 2: Transactions relating to intangible assets:

• Transfer of trademarks and copyrights.
• Transfer of technology and techniques.
• Share commerce, market, informatics software.

Group 3: Transactions relating to service:

• Provide training and management services.
• Provide transnational legal services.
• Provide transnational product warranty and sponsorship services.

Group 4: Financial transactions

• Loan transactions.
• Loan guarantee transactions.
• Derivative instruments have settlement nature in business activities.

In four mention groups, if the buying and selling prices increase or decrease, it will immediately affect profits. In the overall social economics activities, there is no country or tax law that comprehensively interferes with the details of the 4 mention groups. The reason is that it will have the opposite economic effect and difficult to do.

Currently, in order to prevent "erosion the tax base" on transfer pricing, countries in the world, including Vietnam have to promulgate regulations that enterprises have related-party transactions have to make declarations and prepare transfer pricing documentation, which is the first prerequisite. The next step is to amend and determine the corporate income tax rate and deductible expenses in taxable income to be more open and comfortable for enterprises, in line with international practices.

In fact, transfer pricing can be seen as tax evasion, but it can also be seen as transnational optimization of purchases and sales transactions within a group to save tax costs. If the globalization trend of corporate income tax law becomes popular, the act of transfer pricing will gradually become narrower.