Transfer Pricing on Facebook and Apple
Despite the large number of tax regulations, the IRS cannot possibly predict every tax situation. Corporations often try to take advantage of opportunities in tax regulations in ways that benefit them. These practices lead to spirited debate and often litigation. It is important for a tax professional to form educated opinions on such issues in order to advise clients appropriately.
For this discussion, read the article What Facebook and Apple Can Teach You About Transfer Pricing. (attached) Based on prior knowledge and research of the U.S. Tax Code, describe the tax structures that lead companies to engage in transfer pricing. Explain whether you agree or disagree with the practice of transfer pricing and why.
Per instructions:
Discussion Forum – Sources of Tax Authority. The primary sources of tax law are as follows:
The various sections of the Internal Revenue Code of 1986, as amended (Title 26 of the United States Code);
Treasury regulations;
case law from the U.S. Tax Court, federal district courts, the U.S. Court of Federal Claims, the U.S. Circuit Courts of Appeals, and the U.S. Supreme Court; and administrative guidance published in the Internal Revenue Bulletin (revenue rulings, revenue procedures, notices, and announcements).
So please don’t make the mistake of citing the course textbook in discussions and other assignments. And please don’t spell out where you found a particular piece of tax authority (Code section, Treasury regulation, revenue ruling, Tax Court or other case). It’s not necessary, it clutters the writing, and if you do so in real-world practice, then the reader is going to wonder about your proficiency.
Transfer Pricing
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Transfer Pricing
Transfer pricing entails setting prices for transactions that take place between business entities. Currently, it has become a common practice with the growth in international trading and globalization. Section 482 of the United States (US) Tax Code posits that the transfer of any goods or services ought to be done at prices that are similar to what would be achieved if the same transaction happened internally (IRS.gov, 2022). In other words, the value of goods or services should not be lowered when the company is selling its assets or intellectual property rights to its subsidiaries in another country. The paper describes the tax structures that lead firms to engage in transfer pricing.
The US Tax Code is clear when it comes to the taxation structures that should be used in various scenarios. However, large corporations, such as Facebook and Apple, use transfer pricing to reduce the taxes they remit. Although transfer pricing is legal, it might set the basis for under-taxation, particularly when a company sells its intellectual property or assets at a low value to its subsidiaries. Specifically, corporate taxation should occur when an economic value is usually created (Worstall, 2016). Section 482 of the tax regulations depicts that prices charged during an intercompany transaction that involves the transfer of intangibles, services, or goods, should be consistent with the outcomes that would have been realized if taxpayers had participated in a similar transaction. In other terms, intercompany transactions should not be undervalued when selling to third parties to evade tax.
The most significant thing that the taxation system should do is to determine the economic value created so that the right tax structures and individuals can tax it. For instance, Facebook disclosed that it...