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Transfer Pricing Services
The cross-border transfer prices of goods, royalties, services, and loans drive how much income tax a multinational company pays by country. We assist US and international companies in establishing, documenting, and defending transfer pricing practices for the IRS and international tax authorities.
From a government perspective, transfer pricing audits are a high return on investment making sure companies pay their ‘fair share’ of income tax. Transfer pricing audits can result in significant additional tax, interest, and penalties along with double tax.
We provide a full suite of transfer pricing services to US and international multinationals.
Transfer Pricing Services
- Transfer Pricing Documentation - US, OECD, and International
- Transfer Pricing Documentation Report Updates
- Transfer Pricing Comparable Benchmarking Studies
- Transfer Pricing Audit Defense
- OECD Base Erosion and Profit Shifting (BEPS) Services
- Transfer Pricing Consulting
• Tax Reform Transfer Pricing Strategies
• Supply Chain Restructuring
• Mergers & Acquisitions/Due Diligence
- Advance Pricing Agreements
While transfer pricing is an important tax issue, many US and foreign clients are unaware of the tax and cashflow benefits of proactive planning. For example, US tax reform creates some new incentives for multinationals to increase US taxable income to reduce taxes payable. Strategic intercompany pricing strategies can lead to substantial savings on a global basis.
Transfer Pricing Success Stories
Success Story #1 – Multinational Company Utilizing Tax Net Operating Losses
A profitable US parent company sells $7 million in products to its foreign subsidiary that is incurring losses. The company relies upon a “Cost-Plus” policy.
After preparing a transfer pricing analysis, KBKG recommends reducing transfer pricing on cross- border inventory sales by $3M.
Reducing inventory transfer prices by $3 million leads to $330,000 of annual tax savings!
- This strategy is also applicable to foreign-owned companies with US subsidiaries.
- This strategy is also applicable for royalties and service charges.
- Reduces transfer pricing audit risk in foreign country. Tax authorities regularly challenge lossmaking subsidiaries.
Success Story #2 – Tax Reform Transfer Pricing Strategy
US based C-Corp with global revenue of $50M. Historically minimized their tax footprint in the US (due to old 35% tax rate). New investments in R&D and manufacturing have justified increasing transfer prices for goods, royalties and services to subsidiaries.
Increase transfer prices to capitalize on lower US tax rates (21%) through tax reform. Higher transfer prices generate more deductions overseas at higher rates.
A $1 million increase in goods, royalties and/or service charges to subsidiary in a 30% tax jurisdiction yields income tax savings of $90,000 annually ((30%-21%) x $1m)
- This strategy also applies to foreign-owned companies with US subsidiaries
- Higher income in low-tax jurisdictions increases deductions in high-tax subsidiaries
- Every $1m increase in royalty generates $90,000 in tax savings
New incentive for C-Corp exporters, Foreign Derived Intangible Income (“FDII”), allows some export income, including goods, royalties and services, to be taxed at a rate of 13.125%.
- Increases to transfer prices could lead to even higher tax savings, e.g. (30% - 13.125%) = $168,750 annual savings
How Much is it Worth?
US tax reform has created opportunities to improve global effective tax rates through changes to transfer prices. Below is a list of three of the most prominent benefits.
Transfer Pricing Tax Insights
Readers of a certain age may remember CliffsNotes, a lifeline for students who may not have read every book for English class. CliffsNotes were marketed as a study aid for students struggling with Macbeth, War & Peace, or a Tale of Two Cities. Occasionally, students would rely on the yellow-and-black books as salvation while studying … Read More
“You Can’t Beat the Feeling . . . of a $3 billion-plus transfer pricing tax bill.” With apologies to the authors of the Coca-Cola’s 1988 marketing tagline, the IRS won a landmark transfer pricing tax court case against Coca-Cola on November 18, 2020. Coke now owes an additional $3 billion in taxes for 2007 through … Read More
A new global minimum tax means companies operating internationally should expect an increase in US tax rates along with a wider net for capturing profits in low-tax countries. Treasury Secretary Janet Yellen called for a global minimum tax for multinationals in a speech to the Chicago Council of Global Advisors on April 5, 2021. Under … Read More
As featured in Accounting Today Intercompany pricing corrections now can help generate cash by utilizing tax net operating losses. In a pandemic environment, longstanding transfer pricing policies can lead to suboptimal tax results. Multinationals that incur losses in some locations while earning generous profits in others could be overpaying taxes. For many companies, modifications to … Read More
KBKG Tax Insight: CARES Act Offers Overlooked Opportunities for Refunds – First Check Cross Border Prices
As featured in Accounting Today Some multinational companies can generate additional carryback tax loss relief through transfer pricing planning. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, US corporations can now elect to carryback losses incurred in 2020 for a five-year period (2015 to 2019). The Act was implemented to provide badly-needed cashflow … Read More
KBKG Tax Insight: Operating Internationally? You May Pay More Than Your Fair Share of Taxes After COVID-19
Even in a pandemic, multinationals may be surprised to receive a tax bill for their overseas operations, but there may be a silver lining. Ben Franklin is widely credited with the quote, “In this world, nothing can be said to be certain, except death and taxes.” With a pandemic, some companies with cross-border operations expect … Read More
While transfer pricing is an important tax issue, many US and foreign clients are unaware of the tax and cash flow benefits of proactive planning. We have compiled a list of frequently asked questions below to provide insights on the fundamentals of US and international cross-border pricing rules. These questions also highlight some practical strategies … Read More
KBKG: Tell us about yourself, Alex. Alex: I grew up in the Tampa/St. Pete area, but I now reside in Michigan with my wife and daughter. I met my wife as an undergrad, attending school in New Orleans, a city that attracts people from all walks of life. I’ve always been interested in economics, which … Read More
Our Principal, Alex Martin, will be representing KBKG at the FICPA International Tax Conference on January 16th. This conference will provide knowlege needed for your multinational organization or clients, regarding changes and developments happening in international finance every day. Post Update 01/16/2020: Photos from the FICPA International Tax Conference Alex Martin is our Transfer Pricing … Read More
Please spare a thought for the CPAs who finished their first year under the Tax Cuts and Jobs Act (TCJA). While the TCJA was signed into law in December 2017, CPAs from coast-to-coast faced the daunting task of figuring out all of the new rules while preparing returns for the 2018 year. While the complications … Read More