Transfer Pricing on Facebook and Apple

Transfer Pricing
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Transfer Pricing
Transfer pricing entails setting prices for transactions that take place between business entities. Currently, it has become a common practice with the growth in international trading and globalization. Section 482 of the United States (US) Tax Code posits that the transfer of any goods or services ought to be done at prices that are similar to what would be achieved if the same transaction happened internally (IRS.gov, 2022). In other words, the value of goods or services should not be lowered when the company is selling its assets or intellectual property rights to its subsidiaries in another country. The paper describes the tax structures that lead firms to engage in transfer pricing.
The US Tax Code is clear when it comes to the taxation structures that should be used in various scenarios. However, large corporations, such as Facebook and Apple, use transfer pricing to reduce the taxes they remit. Although transfer pricing is legal, it might set the basis for under-taxation, particularly when a company sells its intellectual property or assets at a low value to its subsidiaries. Specifically, corporate taxation should occur when an economic value is usually created (Worstall, 2016). Section 482 of the tax regulations depicts that prices charged during an intercompany transaction that involves the transfer of intangibles, services, or goods, should be consistent with the outcomes that would have been realized if taxpayers had participated in a similar transaction. In other terms, intercompany transactions should not be undervalued when selling to third parties to evade tax.
The most significant thing that the taxation system should do is to determine the economic value created so that the right tax structures and individuals can tax it. For instance, Facebook disclosed that it...