How do you calculate transfer prices for tangible goods?

Las normativas de precios de transferencia se originan con el objetivo de que las empresas paguen los impuestos que le corresponden en cada jurisdicción, y no ocurra una traslado de las ganancias a países que tengan una menor carga tributaria (o nula en algunos casos). Por lo tanto, desde la perspectiva de las autoridades tributarias, los precios de transferencia son una importante fuente de recaudación de impuestos.

There are four critical factors to keep in mind when selecting the best method, according to the US transfer pricing regulations, namely, the degree of comparability between the controlled transaction and uncontrolled transaction, the quality and quantity of data, assumptions used in the analysis, and the sensitivity of results to data deficiencies. The most appropriate method under the OECD guidelines recommends selecting the method based on the circumstances of the transaction.

From the business perspective setting appropriate transfer prices would help to reduce disputes and instances of double taxation. From the government perspective, transfer pricing rules can help to counteract BEPS while providing certainty to MNEs.

Calculating transfer prices for tangible goods involves finding a fair price between affiliated companies during internal transactions. It's like setting the "cost" when one part of your business sells to another. There are several methods, each with its strengths and weaknesses: Cost-plus: Add a markup percentage to the production cost (e.g., 20% markup on a $10 item makes a $12 transfer price) Market-based: Use the actual price of similar goods sold to independent customers (ideal if available). Resale price minus: Deduct a margin from the final selling price (e.g., 15% margin on a $25 item gives a $21.25 transfer price) Transactional net margin: Analyze comparable companies' profit margins to set a fair net profit for the selling entity

The OECD Transfer Pricing Guidelines define a step approach to determine transfer pricing. It starts with the identification of the commercial or financial relations between associated enterprises and the conditions and economically relevant circumstances attached to those relations in order to the controlled transaction to be accurately delineated. It then follows with a comparison of the conditions and the economically relevant circumstances of the controlled transaction as accurately delineated with the conditions and the economically relevant people of comparable transactions between independent enterprises.

For commodities I have often seen CUP method being used for Transfer Pricing purposes. If its not a commodity then an appropriate method based on facts and circumstances has to be selected.

The first step in calculating the transfer price is a review of each legal entity’s risk/function matrix. That study combined with step two, a comparable analysis, will help determine the range of reasonable profit each entity is entitled to. The final step in determine the transfer price is to solve for X in the equation Sales - X = profit, where X is the transfer price.

Si bien en la práctica se ha observado una mayor inspección de los precios de transferencia en transacciones que involucran bienes intangibles, servicios y préstamos; también se han observado importantes ajustes tributarios efectuados a empresas que comercializan bienes commodities, así como empresas de determinados sectores como la minería, farmacéutico, consumo masivo, entre otros. Otro aspecto importante es que existe un mayor riesgo de no cumplir con esta normativa cuando se trata de grupos multinacionales, ya que tienen un alto nivel de transacciones entre partes relacionadas. Así mismo, las empresas que tienen operaciones con paraísos fiscales también tienen un mayor riesgo en esta materia fiscal.

Transfer prices for tangible goods are often calculated using various methods like cost-plus, market price, or negotiated agreements. It involves considering production costs, market conditions, and company strategies to ensure fair pricing between internal entities, balancing competitiveness and profitability.