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What is Transfer Pricing?
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
- Documentation - US, OECD, and International
- Documentation Report Updates
- Comparable Benchmarking Studies
- Audit Defense
- OECD Base Erosion and Profit Shifting (BEPS) Services
- 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
Alex Martin, Transfer Pricing Principal, will be speaking at TXCPA Dallas Convergence on Monday, May 16th. He’ll be joined by Bill Taylor, William Long, Matthew Geltz, Mike Cornell, and Emily Kennedy from our Dallas Fort-Worth office. This event is taking place at the Omni Frisco Hotel in Frisco, Texas. About the TXCPA Dallas Convergence TXCPA … Read More
Our Research and Development Tax Credit Director, Ian Williams, is speaking while Principal, Jonathan Tucker, and Regional Director Chad Niehaus are representing KBKG at the SCACPA Spring Splash Conference 2022. This event takes place from May 12th and May 13th in Spartanburg, SC. Our Southeast team specializes in Cost Segregation, Green Building Tax Incentives (45L … Read More
Looking for CPE credit? We have several sessions available this month. Click the links below to register. If you have questions or need help registering, please email [email protected] Research & Development Tax Credits 05/03/2022 | 12:00 PM PT | 1 hour | 1 CPE credit This webinar will cover the fundamentals of the Research and … Read More
What Happens if Coke Continues to Lose in Tax Court? Coca-cola recently lost an appeal of a transfer pricing court case, which concluded that Coke owes an additional $3.1 billion in tax for 2007 through 2009.¹ In addition to denying the Motion for Reconsideration on procedural grounds, Tax Court Judge Albert Lauber decided to elaborate … Read More
[PRESS RELEASE] KBKG Named One of the World’s Leading Transfer Pricing Practice by International Tax Review
Chicago, Illinois—November 4, 2021—KBKG, a nationwide tax specialty firm, was named one of the world’s leading transfer pricing firms by International Tax Review for 2021-2022. International Tax Review surveyed over 13,000 clients and 2,700 practitioners to identify the most effective transfer pricing advisors across 84 countries. KBKG’s transfer pricing practice is led by Alex Martin, … Read More
KBKG has expanded its leading-edge continuing education offerings to include CLE credits for attorneys. We have partnered with the National Academy of Continuing Legal Education, a leading provider of accredited continuing legal education courses throughout the United States. Attorneys have 24/7 access to course offerings online or on DVDs. Our first CLE course is “Transfer … Read More
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