When one person or entity sells something to another person or entity, it is usually assumed that the seller tried to get a fair price for the item sold. Typically, that price is set by the laws of supply and demand in a market economy. However, when the people involved in the transaction are related in some way, the game changes. Picture, for example, a parent selling a house or a car to a child. The parent may be far more generous than he would be of selling the house to a stranger.
For this reason, it is well recognized that transactions between related parties aren't really reflective of something’s actual worth. This is why, in home appraisals for example, only arms length transactions (transactions involving unrelated strangers) are considered.
In the business world, the same principle applies: when a transaction involves related parties, it cannot be assumed that the price for which something is bought or sold is reflective of the actual worth of the goods/services bought or sold. Unfortunately, when a price is not reflective of value, it creates a multitude of problems in terms of taxing the transaction. Transfer pricing is used to solve those problems and attorneys who represent business clients must advise those clients of transfer pricing and how it applies in transactions between different branches of multi-entity companies.
Mark S. Gottlieb recently wrote a white paper entitled, An Attorney's Guide to Transfer Pricing & Related Valuation Issues. This is a must read for all corporate and business law practitioners.
What attorneys will learn from this whitepaper:
1. What is transfer pricing?
2. When is transfer pricing necessary?
3. What guidelines are required for transfer pricing?
4. What methods are used to assess transfer pricing?
5. How can tax penalties be avoided?
To obtain a free copy of this whitepaper click here!