ELECTRONIC COMMERCE AND TRANSFER PRICING

Globalization of the economy and rapid growth of the multinational enterprises ("MNE") have increased the focus on transfer pricing. Transfer pricing triggers when local taxing authorities view an affiliated company in one political venue as a customer and the related company in another political venue as a supplier. William K. Carter, David M Maloney & M. H. Van Vranken, The Problems of Transfer Pricing, Journal of Accountancy (July 1998). According, to Treas. Reg. 1.482 (1994), transfer pricing regulations are generally based on the principle that transactions between related parties should take place "at an arm's length" basis. Per OECD, Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (1995) (OECD Guidelines), 7.19; Treas. Reg. ยง 1.482-2(b)(1), the arm's length concept requires controlled or affiliated MNEs to transfer goods and services as if they were dealing with an uncontrolled or unaffiliated entity. Therefore, the transfer pricing rules regulate the shifting of income or deductions among related MNEs, preventing them from taking advantage of lower tax rates in other jurisdictions.

The following questions have been addressed in this article:

Who are global dealers?
What are the authorized pricing methods under the regulations?
Should the arm's length charge for a service results in a profit for the service provider?

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