Trials and Tribulations With Transfer Pricing

The legality of transfer pricing certainly has a grey line. Sure, there needs to be the benefit of companies trading with other foreign companies. Companies need to benefit from the abundance of goods and resources from foreign land. However, when prices are set as to avoid the larger taxes and gain maximum profit, litigation may be mandatory.

Transfer mispricing is defined as trade to related parties at distorted prices to minimize the overall tax bill. Unrelated parties who participate in a trade that generally follows a good transfer pricing through the use of the “Arm’s Length Principle” where a common market price for the item being traded is set. However when a company has related subsidiaries, they may participate in this price manipulation. Let us say there are three related companies: X, Y, and Z. Company X has an abundance of minerals that they will trade to Company Y at a low price. Company Y is located in a tax haven, or a place where the tax rates tend to be low. Company Y then trades to company Z at an artificially high price. Company Z has low profits, however company Y has very high profits. Along with that, they are in a low tax area, therefore their high profits achieve maximum profit as they avoid the burden of heavy taxes (Tax Justice Network). As a result, taxes become skewed.

As an actual example, China faced issues regarding transfer price manipulation. In the article, “How To Train A Toothless Dragon: Finding Room For Improvement In China’s Transfer Pricing Regulations”, fifty-five percent of Chinese companies reported a net loss in 2005. Along with this number, a staggering forty percent of transnational companies held in China were forced to make tax adjustments. The Chinese Government believed this was actually due to price manipulation and sought to eradicate that practice in their country. In order to accomplish this goal of avoiding the mispricing of international trade, the Chinese government enacted the sixth chapter of the Enterprise Income Tax Law of 2008. This increases penalties against companies whose intention is to lower their taxes, requires companies to fill out detailed disclosures of their international trade, and demands an advance pricing agreement where the taxpaying company and the Chinese tax authority agree ahead of time on the price of taxes.

Transfer mispricing is so hard to track because the trades switch from multiple companies in multiple countries that all have different tax rates. A single, uniform tax rate might be ideal in theory in order to ease the tracking and the tax pricing of these trades, but it of course would not work in practice. Some companies need a lower tax rate in order to promote business in their area. Countries, like China in from 1996 to 2000, have to put a lot of effort in order to recover billions of dollars lost through transfer pricing. China during this time period recovered almost 10 billion yuan in this time period.

Transfer pricing also has a burden separate of mispricing. Even if companies comply fully with the Arm’s Length Principle, they are subject to disputes that cause adjustments to their taxable income as well as potential penalties because the tax authorities may not agree with the corporations’ economic method or value chain (Journal of Accountancy). Statistically, a growing number of participants in a survey conducted by Earnest and Young said that their companies faced penalties due to transfer pricing. They note that transfer pricing is among the top of all tax concerns because the company is unsure if they are properly abiding by the rules set by the tax authority.

The article regarding the struggles China has faced with transfer pricing sets up an argument. The argument is instead of focusing on reviews after the fact, focus on stopping transfer mispricing in its tracks while it is occurring. The government, like most other governments, focus on how to respond to the acts of price manipulation. These responses are generally after the mispricing has been done and the investigation generally takes a large amount of time. Often, these investigations are failures as the companies committing these illegalities slip right under the investigators’ fingers. In order to potentially prevent this from happening, the article proposes that China better educates its local tax officials on what price manipulation is. They also suggest a stronger cooperation with other countries in distributing information about transfer price offenders. These strategies can be performed by all countries to reduce and hopefully eventually prevent transfer mispricing.

Transfer pricing is a key issue with both individual companies and entire countries. It is a key driving force that sways a country’s taxable revenue as well as a corporation’s income. The uncertainty of transfer pricing is what makes both companies and countries very precautious. A stronger, more uniform tactic to stop the disputes of transfer pricing can serve as a useful tool as training can be done in multiple areas since they will all share the same method. Overall, trading internationally needs to have more defined regulations.

How to Export Products Overseas

Is exporting products overseas really so difficult?

Did you know? According to Businessweek, almost 46% of businesses abroad don’t export their products to foreign markets because they don’t know how? Considering the ever growing buying capacity seen in some foreign markets, this is a disappointing fact. But the truth is, if you are well-prepared, motivated, and confident, exporting your products to overseas businesses is not so difficult. Here we will look at 5 elements you may consider to help you get started exporting products.

CONNECTING WITH CHINESE CUSTOMERS

Visiting trade fairs is an excellent way to introduce your business and products to other business abroad. Thousands of business representatives and people attend trade fairs providing excellent opportunities and fast networking. You can meet and talk to many business representatives and immediately begin forming relationships and trading company information. The time and effort in attending these trade fairs, we believe is an investment. The majority of trade fairs in China are held close to large cities like Shanghai, Guangzhou, and Beijing. Thus, if you are worried about the language difference or transportation, you can take comfort in the fact that most business people in these cities will be able to communicate to you in English and transportation options are readily available. Some businessmen take up the practice of booking a flight and hotel to Hong Kong and taking a train to Guangzhou or one of the large cities where the trade fair is held. (As more planes leave and enter Hong Kong, the opportunity to shop for cheaper flights is increased.) Finally, don’t forget to apply for a visa at least one month prior to your departure.

However, if visiting a trade fair is not an option for you and your businesses, a second option is connecting to businesses similar to your own and seeing if they have any recommended connections or leads overseas. It might take time to find some overseas connections this way, however, if you are committed, it’s very possible to find some overseas buyers through networking.

CONTACTING A DISTRIBUTOR

Some companies recommend using a distributor to help with the exporting process. Although this option comes with a price, it can be a good option for businesses new to the exporting process. (It’s also a useful method for companies who may not have the time or people designated to handling the exporting side of your business.) A distributor will know the overseas market well and can offer advice and assistance on customers clearance, packaging and documentations, importing regulations, and export certifications needed (it varies from country to country). Most distributors offer help in many different areas including marketing guidelines, trademark regulations, etc. Even if you just use the help of a distributor to help you get started, the fee you pay the distributor could be an investment.

CHINA’S CCC MARK

To export most products into China, your products must comply with the standards and regulations outlined in China’s Compulsory Certification (CCC). This certification is issued by China’s Certification and Accreditation Administration of China (CNCA)

There are 21 product categories that require the CCC mark.

– Electrical wires and cables.
– Switches for circuits, Installation protective and connection devices.
– Low-voltage Electrical Apparatus.
– Small Power motors.
– Electric tools.
– Welding machines.
– Household and similar electrical appliances.
– Audio and video apparatus.
– Information technology equipment.
– Lighting apparatus.
– Telecommunication terminal equipment.
– Motor vehicles and safety parts.
– Motor vehicle tires.
– Safety Glasses.
– Agricultural Machinery.
– Latex Products.
– Medical Devices.
– Fire Fighting Equipment.
– Detectors for Intruder Alarm Systems.
– Wireless Local Area Network (WLAN) systems.
– Toys.

To get the CCC mark your company must go through a process. First, there will be an inspection of your factory/company. Second, there will be a follow-up inspection of your enterprise. Finally, your products will be sent to authorization laboratories in China. No matter where your business is located, you must receive the CCC-mark if your products will be marketed in China. If you export products that do not have the CCC-mark, your products will be held-up in customers and perhaps seized or destroyed.

TRADEMARK REGISTRATION

Finally, we strongly recommend you register your trademark in China before you start exporting your products. China’s trademark registry process is based on first-come-first-serve standards. Thus, it’s recommended you to register your trademark before you ship your goods. It’s not required that you register your trademark, however, it’s recommended as this can protect your product and company’s name/reputation.

Is the market for your product flooded with competitors? Every year, increasing numbers of businesses are connecting to the Internet. Your ability to form relationships with businesses and market your products to vastly different markets can offer your company new opportunities you never thought possible. Depending on your product and country of origin, demand for your product could be higher; the demand for foreign products are often greater in other countries. Furthermore, the market for your product may not have so many competitors overseas.

Fine Aspects of Translation Agencies

Have you ever wondered or asked yourself what exactly online translation companies do? Then worry no more since this article will enlighten you about everything that goes on or takes place in a translation company.

Companies majorly handle the translation of one language to another. This is done in a couple of fields like document, website, legal aid, medical, financial, technical, marketing and many other kinds of translations.

Am guessing the major question still on your mind is why online? Well, most translations agencies are online simply because they aim at enabling you acquire their translation services from wherever you are across the whole continent.

Let me give you a scenario of online shopping as an example. People always shop online solely because they can’t access those goods or services in their home areas. Now, when gazing through the goods online, you find the goods you have been looking for let say are only available in China and all the descriptions plus the details about them are in Chinese. Meaning you barely understand anything about those goods but you can’t forego them because it’s your business.

I think even before I say anything else now, you already have an idea about what online translation agencies do simply by this example. An online agency will help you translate each and every detail about the goods in the very shortest time possible which will empower smooth online shopping for you.

The other justification for online translation agencies is speed. Most online translation companies have very fast turnaround time in conjunction with accuracy and reliability in providing you with translation services. This makes sense in a way that you will just sit in one place, submit your document or website in any language for translation and instantaneously receive your translations as you requested. This is very essential let say in a field like medical translations where the victim needs quick attention because the more you delay looking around for translations, the more you put his life at risk.

Online translation agencies also happen to be cost effective. That sounds great, right? That’s true because you will not have to travel the whole world looking for translations in particular languages which may happen to be so dear in terms of transport costs. But all you need with online translations companies is your computer and internet and you will be good to go. The mere costs you may face are for the translation services you get which are affordable in my view.