The Research On Transfer Pricing Decision-making

Economic globalization allows companies to reduce their tax burden by the abuse of transfer pricing, and their behavior is becoming increasingly fierce, which severely erodes the tax base of every country. Tax authorities’ investigation on transfer pricing becomes more frequently and punishments become more severe. Enterprises suffer economic and reputation losses because of the investigation. Therefore, enterprises should develop scientific transfer pricing decisions to avoid losses.This paper uses X company as an example to explore the process of enterprise’s scientific transfer pricing decision-making. X company’s operating conditions and connected transaction situation suggest that there is risk of tax authorities’ investigation and adjustment.This paper uses transfer pricing decision-making procedure to adjust X company’s transfer pricing and develops a more scientific transfer pricing decision, it can avoid losses caused by transfer pricing investigation. Specifically, this paper studies X company’s functions and risks and chooses a transfer pricing method which complies with the tax law for X company. It acquires convincing comparable objects through authoritative database. It uses linear programming to determine the optimal transfer price, which can achieve each company’s profit goal and overall profit maximization on the basis of tax compliance. X company can apply for APA to obtain a rational review of its decision-making from tax authority. X company should also focus on the follow-up management of transfer pricing.According to the case study, this paper summarizes a transfer pricing decision-making framework that most enterprises can draw lessons from it. When making transfer pricing decision, enterprises should definite its target and carefully analyze the function and risk of its own to select the appropriate transfer pricing method, it should also ensure the reasonableness and effectiveness of comparable objects. The transfer price should ensure every participating company can obtain a reasonable profit. It should apply for an APA initiatively and pay attention to the follow-up management. Thus reduce the risk of transfer pricing investigation and play an active role in the consultations about transfer pricing with tax authority.