Transfer Pricing Loopholes Likely to be Closed Soon

Among tax-avoidance methods, transfer pricing is the most controversial. While it is never acceptable to the Revenue Department, it has become pervasive and more complicated. The most common example deals with two related entities — one profitable and one unprofitable — entering into a transaction either at an exaggeratedly high or unusually low price. The profit-making company sells goods or services to the loss-making company at a price below what it normally charges non-related entities, while the latter will on-sell the products at a much higher price and book the profits. Alternatively, the loss-making company could sell to the profit-making company at a high price, allowing the latter to increase its tax cost base.