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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.

Strategy

After preparing a transfer pricing analysis, KBKG recommends reducing transfer pricing on cross- border inventory sales by $3M.

Success Story 1 Transfer Pricing

Results

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.

Strategy

Increase transfer prices to capitalize on lower US tax rates (21%) through tax reform. Higher transfer prices generate more deductions overseas at higher rates.

Transfer Pricing Increase Royalty Chart

Results

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

Additional Benefit

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.

Export Income

Foreign Derived Intangible Income (“FDII”) allows C-Corporations to pay a 13.125% rate on some export income

Tax Savings

Changes to transfer prices of imported goods may also lead to tax savings at the 21% rate

Benefits

Substantial benefits when correcting transfer pricing to utilize tax net operating losses

Transfer Pricing Tax Insights

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