World Small Village Tax
The world has now become a small village in which all tax laws comply globally to achieve tax justice, the first of which is the transaction pricing policy, Neutral price.....
Tamer mohamednosair - • Tax services and everything related to taxes
The world has now become more like a small village in which all tax laws comply globally to achieve tax justice, and we will address this through a series of articles, the first of which is the transaction pricing policy (neutral price).
Definition
Pricing of transactions between related parties or what is known as the transfer price (fair price) is a term that has spread and appeared recently in Egypt in connection with the amendments of the Egyptian tax laws to keep pace with international laws, but is the goal of the fair price or transfer price is taxes only؟
Undoubtedly, the emergence of pricing policies emerged through the policies of the organization for Economic Cooperation and Development (oecd), the main goal of which was established in 1961 was to support policies that would develop the economic situation of peoples around the world.
One of the objectives of this policy is indeed the fair pricing of transactions to achieve both tax justice and the Prevention of double taxation between countries.
But this is not the goal or the reason why the transaction pricing policy appeared, but the real need for the transaction pricing policy is the management of accounts between branches, the main management and the valuation of branches.
Transaction pricing is a basic process required to evaluate and audit the accounts of any organization operating through more than one segment (more than one company, department, department, branches, cost centers).
Therefore, we cannot say that pricing policy is a luxury sought by governments or companies, but it is a basic need for assessment and fairness, both tax and accounting.
The fair price as mentioned has two objectives, an economic objective and a tax objective.
There is a clear and explicit definition of a fair price according to economist Charles heghorn, which is that a fair price is the price that is paid by a unit within a company (or department, department, branch) for a service or a good for a unit ( Department, Department, branch) within the same company.
The main economic reason or goal of pricing is the ability to evaluate the performance between different and related departments within the enterprise or organization.
For example, based on the fair price, managers in different departments determine whether the service is sold or evaluated internally, whether it is more profitable to perform the service or sell the item to an outside party.
Because it is on the basis of profitability and achievement of goals that managers are evaluated and therefore setting a fair price has become a fundamental requirement here for evaluation and achieving justice.
As for the tax perspective or objective, it aims to reach the tax profit determined based on the tax burden, which in turn depends on the accounting profit.therefore, it is necessary to reach a fair price for transactions between parties or companies so that there is no tax injustice or double taxation.
For example, there is a transaction between two branches of the same company, each branch in a different country, if the neutral price is not specified, it will be a branch charged with costs or a low selling price in favor of another branch, which will entail a high tax burden in the country of the most profitable branch and low tax in the least profitable branch.therefore, governments seek to determine the fair and neutral price of transactions under a fair accounting net profit is determined on the basis of which a net tax profit is determined and therefore a fair tax for each country.