Transfer Pricing Algorithm
Introduction
Context
Welcome to the OpenSource Transfer Pricing Algorithm with Tax Impact Computation wiki page! This platform serves as a comprehensive resource for understanding and implementing a pioneering open-source algorithm specifically designed to calculate and analyze transfer pricing and its subsequent tax implications.
Transfer pricing is a pivotal aspect of international trade and finance, playing a crucial role in determining the value at which transactions occur between associated enterprises. It significantly influences the allocation of income, expenses, and consequently, tax liabilities among different tax jurisdictions. The meticulous computation of tax impact is imperative for businesses to ensure compliance, optimize tax obligations, and foster fiscal transparency.
Objectives
The objective of this algorithm is to perform transfer pricing computations on a dataset from a company, produce the transfer prices and/or make adjustments to the transfer pricing, and, if configured, calculate the subsequent tax impact. This includes both National taxation and bilateral taxation, addressing complex Withholding tax treatments that may arise. Additionally, the algorithm's output can include suggestions for algorithmically improved margin rates that could reduce the overall tax burden.
Feature Overview
The algorithm will present the following features:
- Transactional Net Margin Method for Transfer Pricing computation, based on Entity Profit Level Indicators and a wide range of commonly used Key Profit Indicators
- Royalty and Management fee computation based on selected bases (Sales, OG Sales, specific costs or accounts)
- Transfer pricing adjustment computation
- Tax impact of individual flows with regards to Withholding taxes both in the source and the destination jurisdictions
- Aggregated tax impact on each tax payer including different features of tax systems (losses carry forward, tax credits on WHT...)