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K사 Transfer Price Valution
We guided K Co. through Customs' review of their Chemical Goods pricing, ensuring it reflected industry norms and complied with intercompany transaction standards, backed by comprehensive documentation and analysis.
Introduction & outline
Y Co., headquartered in Asia, imports "H" from its subsidiary in Europe. No sales of "H" occur to unrelated parties in Europe, and Y Co. doesn’t buy similar products from other companies.
In 2013, Y Co. reported the import price based on the invoice. Customs doubted the price fairness due to the family relationship between Y Co. and its European subsidiary.
Challenges
Planning & Analysis
In response to Customs’ request, Y Co. provided a transfer pricing study for 2012, following the Cost Plus Method. This method assessed the cost of production plus a markup as the transfer price.
The study included a comparative analysis of markups applied by similar independent companies within the industry.
The study's key financial data included:
Sales: 150.0
Cost of Goods Sold: 120.0
Gross Profit: 30.0
Operating Expenses: 20.0
Operating Profit: 10.0
Operating Profit Margin: 6.67% of sales
The study showed HCO’s margin was 6.67% in 2012, within the range of independent companies.
This was reviewed by tax authorities in countries Y and H while discussing a pricing agreement. They agreed Y's margins matched those in the broader market for similar products.
Documents in need
Transfer Pricing Study, issued by an independent financial consulting firm.
Production cost reports of "H", issued by the European subsidiary's accounting department.
Comparative markup analysis, compiled by an external market research agency.
Invoice details and import declaration forms, issued by Y Co.'s logistics department.
Tax compliance certificates from both Y Co. and its European subsidiary, issued by respective national tax authorities.
Take aways
Customs concluded the pricing for "H" was in line with industry standards and not influenced by the intercompany relationship. This was based on the comprehensive transfer pricing study and supporting documents showing that the markup applied was comparable to those in similar transactions by independent companies.
Y Co.’s thorough documentation and adherence to industry pricing norms ensured a favorable assessment from Customs, aligning with the principles of the WTO Valuation Agreement.
We guided in review of their Chemical Goods pricing, ensuring and complied with inter-company transaction standards, backed by comprehensive documentation and analysis.
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