Ireland Transfer Pricing

[Bolo]

Hi,

I have a question around transfer pricing. The group of companies I work in has 3 companies under a holding company, two Irish companies and one US company. One Irish company is a manufacturing company and the other is R&D and sales. The US company is purely a sales company for the products developed by the Irish R&D company.

The manufacturing company manufactures product for the Irish R&D company, normal arms length costing is performed for each product. The R&D company sells to customers around the world at set prices. It also sells to the US company who then on sells to US customers. When selling to the US company, the Irish R&D company adds 20% onto the price paid to the Irish manufacturing company. This 20% is really just to recover development costs with no real profit margin included. The US company then sell at the same price as the Irish R&D company would sell to it's normal customers, only converted to USD.

My question is, does only adding the 20% cost recovery to the price for the US company comply with transfer pricing regulations? If we were to use the arms length rule, the US company would pay the same as it was selling the product for so it would make no profit.

Any help or advice greatly appreciated

 

[Yash]

Where adopted, transfer pricing rules allow tax authorities to adjust prices for most cross-border intragroup transactions, including transfers of tangible or intangible property, services, and loans.[2][7] For example, a tax authority may increase a company’s taxable income by reducing the price of goods purchased from an affiliated foreign manufacturer[8] or raising the royalty the company must charge its foreign subsidiaries for rights to use a proprietary technology or brand name.[9] These adjustments are generally calculated using one or more of the transfer pricing methods specified in the OECD guidelines[10] and are subject to judicial review or other dispute resolution mechanisms.[11]
https://en.wikipedia.org/wiki/Transfer_pricing

 

[Yash]

Hi,

I have a question around transfer pricing. The group of companies I work in has 3 companies under a holding company, two Irish companies and one US company. One Irish company is a manufacturing company and the other is R&D and sales. The US company is purely a sales company for the products developed by the Irish R&D company.

The manufacturing company manufactures product for the Irish R&D company, normal arms length costing is performed for each product. The R&D company sells to customers around the world at set prices. It also sells to the US company who then on sells to US customers. When selling to the US company, the Irish R&D company adds 20% onto the price paid to the Irish manufacturing company. This 20% is really just to recover development costs with no real profit margin included. The US company then sell at the same price as the Irish R&D company would sell to it's normal customers, only converted to USD.

My question is, does only adding the 20% cost recovery to the price for the US company comply with transfer pricing regulations? If we were to use the arms length rule, the US company would pay the same as it was selling the product for so it would make no profit.

Any help or advice greatly appreciated

The business is a going concern and profit maximisation is its mission. So companies usually set their standard price in their own country to attain minimal marginal profits in this case + marketing expenses by the US company. It all depends on the pricing policy and I could not find any article that every company should follow a certain pricing. Mark-up is common and besides these three companies are not unrelated parties and hence best practises are encouraged (http://www.ustransferpricing.com/best_method_rule.html). Finally I don't think it is a problem because you are not selling in US to other companies but rather consumers directly. Hope you did not find anything wrong with my assumptions and evidences.

 

[Yash]

Hi,

I have a question around transfer pricing. The group of companies I work in has 3 companies under a holding company, two Irish companies and one US company. One Irish company is a manufacturing company and the other is R&D and sales. The US company is purely a sales company for the products developed by the Irish R&D company.

The manufacturing company manufactures product for the Irish R&D company, normal arms length costing is performed for each product. The R&D company sells to customers around the world at set prices. It also sells to the US company who then on sells to US customers. When selling to the US company, the Irish R&D company adds 20% onto the price paid to the Irish manufacturing company. This 20% is really just to recover development costs with no real profit margin included. The US company then sell at the same price as the Irish R&D company would sell to it's normal customers, only converted to USD.

My question is, does only adding the 20% cost recovery to the price for the US company comply with transfer pricing regulations? If we were to use the arms length rule, the US company would pay the same as it was selling the product for so it would make no profit.

Any help or advice greatly appreciated

EY, on page 4 suggests that different transfer pricing is allowed. http://www.ey.com/Publication/vwLUA...ing/$FILE/EY-overview-of-transfer-pricing.pdf

 

[Bolo]

That's very helpful Yash, thanks very much