Well don’t underestimate transfer pricing tax planning:

Recently reported in Reuters that:
“ The U.S. Internal Revenue Service (IRS) claimed back tax from Glaxo (Europe’s biggest drug-maker) after alleging it engaged in so-called “transfer pricing”, a practice designed to minimise U.S. taxable profits by overpaying foreign subsidiaries for product supplies. The IRS argued that Glaxo’s U.S. unit had overpaid its British parent for various drugs, including its once best-selling ulcer pill Zantac, which is now off patent.
The dispute with the IRS goes back to an audit by the tax authority in 1992 of Glaxo Wellcome, which later merged with SmithKline Beecham to form GlaxoSmithKline.
The settlement covers an original dispute for the period 1989-2000, which was due to go to trial in February 2007, as well as the subsequent years 2001-2005. GlaxoSmithKline Plc will pay a net $3.1 billion to settle an ongoing tax dispute with the U.S. government, which was to go to trial next year.”

Glaxo can afford such challenges as it has deep pockets, but imagine that if this happens to your company. So do be careful when reviewing the transfer pricing of your goods and service especially to overseas counterparts like subsidiaries, associates, holding company.

(refer my earlier transfer pricing articles for India)

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