Transfer pricing concerns prices in relevant transactions between connected parties. Tax rules examine whether specified transactions have terms comparable to those that independent parties would agree.
An unusually low intra-group selling price can move profit from seller to buyer. A low price alone does not prove a breach, however. Independent parties also consider volume, quality, timing, functions and risks. Comparability matters more than matching the first price found online.
Suppose one company sells a batch to an associated buyer for AZN 80 per unit and to an independent customer for AZN 100. The difference needs explanation, but is not automatically AZN 20 of underpricing. The second contract may include delivery, credit and a warranty absent from the first. Compare terms before drawing a conclusion.
The State Tax Service’s explanation refers to Tax Code Article 14-1 and specified transactions involving non-residents. The scope is neither every domestic intra-group transaction nor simply the everyday meaning of affiliation. Check the current provision for covered transactions, methods and obligations.
Contracts, the parties’ functions, risk allocation, payment terms and comparable transactions help explain pricing. “It is our subsidiary” is not a substitute for analysis. Reporting and documentation depend on the applicable criteria; old thresholds copied from an unrelated article may be misleading.
A subsidiary’s revenue and consolidated group revenue are different concepts: intra-group transactions can be eliminated in consolidation. Also distinguish the accounting transaction price from a tax adjustment. Establishing a foreign subsidiary does not, by itself, demonstrate unlawful profit shifting.
No. The issue is compliance with applicable rules and support for the terms of the specific transaction.
Not always. Products, functions, risks, volumes and commercial terms must be sufficiently comparable.
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