What is the role of Transfer Pricing for taxation of international profits?
Transfer pricing is an important concept in international tax law relating to the taxation of profits earned by companies operating in multiple countries. Transfer pricing involves the setting of prices for goods and services that are traded between a company’s subsidiaries or offices located in different countries. The prices of these goods and services are set between the two parties to reflect the result that each company would have obtained if they had been dealing with unrelated parties. In Washington, companies pay taxes on the profits earned from their subsidiaries located in other countries based on the transfer pricing that has been set between the two parties. The agreed upon transfer pricing serves as the basis for setting the profits of the two parties involved, as well as the taxes that should be paid by each of them. If a company’s profits are artificially reduced due to transfer pricing manipulations, the company may be subject to sanctions and penalties from the Internal Revenue Service. Therefore, transfer pricing plays an important role in international tax law in Washington, as it provides the basis for calculating the profits and taxes owed by companies operating in multiple countries. It also ensures that companies do not artificially reduce their profits by inappropriately setting transfer pricing provisions.
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