Chapter 9 International Transfer Pricing and Taxation

CHAPTER  9

INTERNATIONAL TRANSFER PRICING AND TAXATION

BACKGROUND OF THE BASIC CONCEPTS OF INTERNATIONAL TAX

Indonesia is also a part of the international community must be in the running wheels of government to international relations. International relations could be cooperation in security and defense cooperation in the social, economic, cultural and other, but the discussion is limited to the export and import (International Trade Transactions) related to international tax.
Any cooperation with all countries have agreed in advance by the parties to achieve a shared commitment contained in the agreement, the agreement is no exception in the tax field.
For that we need international tax policy in terms of the applicable tax set in a country, assuming that each state must be established in the applicable tax to the territory. But each state is free to regulate taxation of entities or foreign nationals, international taxation is a form of international law, in which each country must be subject to international treaty known as the Vienna Convention.

That principle must be understood by the international taxation
Doernberg (1989) cites three elements that must be met netralism in international tax policy:

1.      Capital Export Neutrality (Domestic Market Neutrality): Wherever we invest, the burden of taxes paid should be the same. So it makes no difference if we invest in domestic or foreign. So do when investing abroad, a greater tax burden Since both countries bear the tax. It will support the Income Tax Act Art 24 governing foreign tax credits.

2.      Capital Import Neutrality (International Market Neutrality): Anywhere from investments, according to the same tax. So it's better than domestic investors or overseas will be subject to the same tax rate when investing in a country. It is the right of taxation is equal to the taxpayer of the underlying of the Interior (WPDN) of a permanent establishment (PE) or Fixed Uasah Agency (BUT), which could be a branch of the company or service activities through the test of time regulations.

3.      National Neutrality: Every country has the same tax on income. So if any foreign taxes are not deductible as an expense deduction was credited earnings.

FOREIGN INCOME TAX AND TAXATION

Connection with the concept of foreign income tax
Each country claims to apply a tax on income generated within its borders. However, the national philosophy on taxation of foreign resources is different and this is important from the perspective of a tax planner.

Foreign tax credit Based on the principle of worldwide taxation, foreign income from domestic company is taxable in full the fine imposed in the host country or countries of origin. To avoid the reluctance of companies to expand abroad and to maintain the concept of neutralization abroad, the parent company's domicile (state chair) may elect to treat the foreign tax credit paid to the parent company's tax liability as a domestic or a deduction as a deduction on taxable income.

Creditors of the foreign tax can be calculated as a direct credit on income tax paid on a branch or subsidiary and income taxes withheld at source, as dividends, interest, and royalties are sent back to domestic investors. The tax credit can also be estimated if the amount of foreign income tax paid is not very clear (when the foreign subsidiary sends the profits come from abroad to the domestic parent company).

Dividends are reported in SPT's parent company should be calculated gross (gross - up) to cover the amount of tax plus all applicable taxes in foreign countries. This means that the domestic parent company receives dividends, including taxes owed to foreign governments and then pay taxes. The Indirect Tax Credit allows foreigners (foreign income taxes deemed paid) are as follows: Payment of dividends (including the value of the overall tax) / Profit after income tax of foreign X foreign tax can be credited.

TAX PLANNING IN MULTINATIONAL COMPANIES

In the tax planning of multinational companies have certain advantages over a purely domestic firm because it has greater flexibility in determining the geographic location of production and distribution systems. This flexibility provides an opportunity to exploit differences in national tax ataryuridis their own so as to lower the overall corporate tax burden.
This observation is the tax issue in the initial planning of the two basic things:

a.       Tax considerations should not control the business strategy

b.       Changes in tax laws that continue to limit the benefits of tax planning in the long run.

VARIABLE IN TRANSFER PRICING

Transfer prices set a monetary value on the stock of companies that occurred between the operating unit and is a substitute for market prices. In general, the transfer price is recorded as revenue by one unit and the unit cost by others. Cross-border transactions of multinational companies are also open to a number of environmental influences that created the same time destroying the opportunity to increase profits through transfer pricing. A number of variables such as level of competition inflationi tax rates, currency values, limiting the transfer of funds, political risk and the interests of joint venture partners are making a very complex transfer pricing.

FUNDAMENTAL PROBLEM IN PRICE TRANSFER METHOD
Tax

Reasonable transaction price is the price to be received by a party unrelated to the particular item the same or similar in the same or similar circumstances is appropriate. Reasonable method to determine the transaction price can be received are:

1.      method of determining the comparable uncontrolled price.

2.      method of determining the resale price.

3.      plus the cost price determination methods and

4.       Other methods of assessment levels

Factor Tariff.

Tariffs for imported goods also affect transfer pricing policies of multinational corporations. In addition to the identification of equilibrium, multinational companies must consider the costs and benefits, both internal an external. High tax rates paid by the importer will generate the income tax base is lower.

Competitiveness Factors

Similarly, lower transfer rates can be used to protect the ongoing operation of the influence of foreign competition is increasingly tied to the local market or other markets. Consideration must be balanced against the loss of competitiveness was much the opposite effect. Transfer rates for competitive reasons may invite anti-trust action by the government.
Performance Evaluation Factors Transfer pricing policy is also influenced by their influence on behavior management and is often a major determinant of corporate performance.