The document discusses transfer pricing perspectives on losses or low profits incurred by entities engaged in related party transactions. It addresses several key points:
1) Losses or low profits are not necessarily abnormal and can have commercial explanations not related to transfer pricing. The key is whether transactions were conducted at arm's length prices.
2) Losses can be justified if they are temporary and due to start-up costs, economic downturn, business strategies to gain market share, or other explainable reasons.
3) Taxpayers should maintain documentation to show losses are due to non-transfer pricing commercial factors rather than related party transaction pricing issues. Comparability analysis and economic adjustments may also be needed.
The document discusses transfer pricing in India. It begins with an introduction to transfer pricing, noting that it refers to the pricing of cross-border transactions between related entities. The price must be comparable to what unrelated parties would charge, known as the arm's length price. It then provides an overview of India's transfer pricing regulations, including the introduction of legislation in 2001 based on OECD guidelines. Key points covered include the definition of associated enterprises, identification of international transactions, and the methods used to determine arm's length pricing such as comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods. The document also includes two case studies applying these methods.
Transfer pricing refers to the prices charged for transactions between related parties. It is important for tax purposes as multinational groups can use transfer pricing to minimize taxes by shifting profits between jurisdictions with different tax rates. The arm's length principle requires transfer prices to be the same as if the parties were unrelated. There are several methods to determine appropriate transfer prices such as the market rate method, adjusted market rate method, and transactional net margin method which compares the profit of related party transactions to similar uncontrolled transactions. Factors that influence transfer pricing include tax rates, currency fluctuations, and regulations from bodies like the OECD.
The Economics of Business Restructuring Published VersionPhilippe Penelle
The document discusses business restructuring transactions where a controlled manufacturer or distributor is converted into a low-risk contract manufacturer or distributor through a change in transfer pricing policy. Tax authorities are skeptical of these transactions and argue they lack economic substance unless compensated by an "exit charge" equal to expected future profits. However, the author argues that from an economic perspective, reducing risk justifies lower expected income without an exit charge, if the risk reduction is properly measured. The author urges the OECD to apply solid economic analysis and principles to provide guidance on these transactions consistent with how markets work.
This document provides an overview of environmental accounting. It begins with defining environmental accounting and its objectives, which include quantifying environmental costs and benefits to help decision making. It then describes the different types of environmental accounting like management, financial, and national accounting. Key benefits are outlined as improved decision making, cost savings, and regulatory compliance. Limitations include the difficulty in measuring environmental impacts and developing standardized methods. The document also discusses the legal framework for environmental accounting in India and provides examples of relevant laws.
This is a presentation on AS 20 for calculation of BASIC and DILUTED EPS as prescribed by ICAI with examples for better understanding for CA Final and IPCC
This presentation talks about meaning of Corporate Governance, models of corporate Governance. It includes Anglo-American, German, Japanese Model of governance.
Go through to know more about the CG & Business Models.
This document provides information about transfer pricing for an international business course. It defines transfer pricing as the prices charged for transactions between related parties, and notes that over 75 countries have adopted rules to monitor such transactions due to concerns about tax avoidance. The key methods for determining arm's length prices are described, including comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods. The document also discusses transfer pricing regulations in Bangladesh and notes that transfer pricing considerations extend beyond taxation to include management accounting and organizational impacts.
The document discusses transfer pricing in India. It begins with an introduction to transfer pricing, noting that it refers to the pricing of cross-border transactions between related entities. The price must be comparable to what unrelated parties would charge, known as the arm's length price. It then provides an overview of India's transfer pricing regulations, including the introduction of legislation in 2001 based on OECD guidelines. Key points covered include the definition of associated enterprises, identification of international transactions, and the methods used to determine arm's length pricing such as comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods. The document also includes two case studies applying these methods.
Transfer pricing refers to the prices charged for transactions between related parties. It is important for tax purposes as multinational groups can use transfer pricing to minimize taxes by shifting profits between jurisdictions with different tax rates. The arm's length principle requires transfer prices to be the same as if the parties were unrelated. There are several methods to determine appropriate transfer prices such as the market rate method, adjusted market rate method, and transactional net margin method which compares the profit of related party transactions to similar uncontrolled transactions. Factors that influence transfer pricing include tax rates, currency fluctuations, and regulations from bodies like the OECD.
The Economics of Business Restructuring Published VersionPhilippe Penelle
The document discusses business restructuring transactions where a controlled manufacturer or distributor is converted into a low-risk contract manufacturer or distributor through a change in transfer pricing policy. Tax authorities are skeptical of these transactions and argue they lack economic substance unless compensated by an "exit charge" equal to expected future profits. However, the author argues that from an economic perspective, reducing risk justifies lower expected income without an exit charge, if the risk reduction is properly measured. The author urges the OECD to apply solid economic analysis and principles to provide guidance on these transactions consistent with how markets work.
This document provides an overview of environmental accounting. It begins with defining environmental accounting and its objectives, which include quantifying environmental costs and benefits to help decision making. It then describes the different types of environmental accounting like management, financial, and national accounting. Key benefits are outlined as improved decision making, cost savings, and regulatory compliance. Limitations include the difficulty in measuring environmental impacts and developing standardized methods. The document also discusses the legal framework for environmental accounting in India and provides examples of relevant laws.
This is a presentation on AS 20 for calculation of BASIC and DILUTED EPS as prescribed by ICAI with examples for better understanding for CA Final and IPCC
This presentation talks about meaning of Corporate Governance, models of corporate Governance. It includes Anglo-American, German, Japanese Model of governance.
Go through to know more about the CG & Business Models.
This document provides information about transfer pricing for an international business course. It defines transfer pricing as the prices charged for transactions between related parties, and notes that over 75 countries have adopted rules to monitor such transactions due to concerns about tax avoidance. The key methods for determining arm's length prices are described, including comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods. The document also discusses transfer pricing regulations in Bangladesh and notes that transfer pricing considerations extend beyond taxation to include management accounting and organizational impacts.
Key Takeaways:
Common Issues in Transfer Pricing
Issues relating to Transactions and Specified Items
Issues relating to Comparable and Assesments
Issues arising pursuant to Covid-19
This document discusses transfer pricing, which refers to the prices at which divisions within a company trade goods and services with each other. It outlines three main methods for determining transfer prices: cost-based pricing, market-based pricing, and negotiated pricing. The objectives, advantages, and disadvantages of transfer pricing are also examined. Key points covered include minimizing tax liability, maintaining divisional autonomy, and using transfer prices as a performance measurement tool.
The document discusses revenue recognition standards. It defines revenue as income from ordinary business activities like sales, fees, interest and dividends. Revenue is recognized when earned and realized/realizable, such as when goods/services are exchanged for cash. For long-term contracts, revenue can be recognized using percentage-of-completion or completed contract methods depending on certainty of costs and contract terms.
The amortization schedule shows the recovery of the lessor's investment in the leased asset over the lease term through both the lease payments and interest revenue.
LO 5 Describe the lessor’s accounting for direct-financing leases.
31
Accounting by the Lessor
Direct-Financing Method (Lessor)
Journal Entries:
1/1/07 Asset (cost) 245,000
Receivable from lessee 245,000
1/1/07 Cash 46,000
Interest revenue 19,900
Receivable from lessee 26,100
No manufacturer's profit or loss is recognized.
Interest method provides a constant periodic rate of
Ind AS 18 provides guidance on accounting for revenue. It aims to determine when to recognize revenue. Revenue is recognized when future economic benefits flow to the entity and can be reliably measured.
The standard addresses revenue recognition for sale of goods, rendering of services, and interest, royalties or dividends. For sale of goods, revenue is recognized when risks and rewards of ownership transfer. For services, revenue is recognized by reference to completion percentage. Interest is recognized using effective interest rate method, while royalties and dividends are recognized on an accrual basis.
The document also discusses concepts like deferred payment terms, non-cash transactions, and components of transactions. Disclosures required include revenue categories, accounting policies,
The document discusses suggested answers for the CA Professional Stage Knowledge Level exam for November-December 2016. It includes suggested answers on topics like assurance, accounting, taxation, business and finance, management information, business and company law, and information technology. The document is published by the Institute of Chartered Accountants of Bangladesh and contains the copyright information.
ENVIRONMENTAL ACCOUNTING CONCEPT AND REPORTING PRACTICEMasud Kaium
- Bangladeshi banks are increasingly recognizing the importance of environmental accounting and reporting (EAR), though EAR practices are still developing.
- From 2010-2014, EAR disclosures by banks improved, with more quantitative and qualitative information included in annual reports.
- While most banks now include some environmental information, reporting quality and consistency needs improvement. Mandatory EAR guidelines would help standardize and improve reporting.
- Key activities reported include tree planting, waste management programs, and green financing options. However, comprehensive and detailed EAR remains limited.
Transfer Pricing
Objectives of Transfer Pricing
Methods of Transfer Pricing
Cost Based Transfer Pricing
Market Based Transfer Pricing
Negotiated Transfer Pricing
Advantages and Disadvantages
Creative accounting refers to manipulating financial statements through flexibility in accounting rules to misrepresent the actual financial performance and position of a company. It can involve overstating revenues and assets or understating expenses and liabilities. While some view it as a legitimate way to provide clearer financial information, critics argue it misleads investors and other stakeholders for the benefit of managers. Common techniques include improper revenue recognition, manipulating reserves and provisions, and fiddling with acquisition values. Several major accounting scandals in the past involved billions in inflated or fake earnings through creative accounting.
This document provides an overview of transfer pricing. It defines transfer pricing as the price at which divisions of a company transact with each other. The document outlines several purposes of transfer pricing, including evaluating division performance and shifting profits between tax jurisdictions. It also discusses transfer pricing methods, influences on companies, disadvantages, and provides an example to illustrate how transfer pricing can benefit a company.
The course aims to provide students with an in-depth understanding of financial accounting issues and emerging accounting topics to exercise appropriate judgment in selecting and presenting accounting information. Students will learn to understand accounting frameworks and ethical codes, describe accounting standard provisions and principles, account for assets and liabilities, recognize revenue, account for income taxes, and prepare financial statements in accordance with standards. They will also develop arguments for accounting problems.
This document outlines the requirements and guidance for a first-time adopter of International Financial Reporting Standards (IFRS) as provided in IFRS 1. It discusses the objective, scope, definitions, recognition and measurement principles, mandatory exceptions and optional exemptions to retrospective application that a first-time adopter must consider. It also provides examples of the phased transition approach to IFRS adoption in Ethiopia, including transition dates and timelines for different entities.
Environmental accounting tracks the economic system's relationship with the environment by modifying national accounting systems. It accounts for natural resource use, pollution emissions, and the value of non-market environmental goods and services. Environmental accounting aims to identify environmental costs and revenues, reconcile conflicts between economic and environmental goals, and support more sustainable decision-making. It includes methods like natural resource accounts, emissions accounting, and disaggregating conventional accounts.
This document summarizes key aspects of Accounting Standard 19 (AS-19) related to accounting for leases in India. It discusses the differences between finance and operating leases, and the accounting treatment for lessors and lessees under each. It also covers sale and leaseback transactions, tax implications, and disclosure requirements as per AS-19.
Overview of Transfer Pricing in India - EY IndiaSadanandGahivare
Read about transfer pricing in India & its applicability which can help you build and implement the structure that makes sense for your business & to manage the cost of trade.
This document discusses methods for measuring and controlling assets employed in business units. It describes two main methods - return on investment (ROI) and economic value added (EVA). ROI is a ratio that compares income to assets employed, while EVA is a dollar amount that subtracts a capital charge from net operating profit. The document explores how different types of assets like cash, receivables, inventories, property/equipment should be treated in the calculation. It also addresses topics like how to treat leased assets, idle assets, intangible assets, and noncurrent liabilities. The goal of accurately measuring assets employed is to motivate managers and provide useful information for decision making.
The document discusses tax planning considerations for owning or leasing assets, repairing vs replacing assets, decisions to make or buy products, and tax provisions related to shutting down a business. It provides guidance on comparing the present value of cash outflows for owning vs leasing, when it is preferable to lease vs own, and how to treat the sale of former research assets. It also outlines tax treatments and deductions allowed for repairs, and considerations for shut down like set-off of losses and depreciation.
IAS 18 provides guidance on accounting for revenue. It defines revenue as the gross inflow of economic benefits during an accounting period from ordinary activities. Revenue is recognized when it is probable future economic benefits will flow to the entity and these benefits can be measured reliably. Revenue is measured at the fair value of consideration received, taking into account the stage of completion for services and the transfer of risks and rewards of ownership for goods. The standard also provides disclosure requirements around revenue recognition policies and accounting estimates.
This article is on certain peculiar transfer pricing issues in Media & Entertainment. This article has been recently appeared as one of the chapter of the book on ‘Media & Entertainment Industry’ published by All India Federation of Tax Practitioners (AIFTP).
The entire book contains various issues on Direct tax, Indirect tax, International tax & IFRS in Media & Entertainment Industry.
This document summarizes the key transfer pricing regulations and methods that are relevant for analyzing Nestle's intercompany transactions. It discusses the arm's length standard, best method rule, and methods like the comparable uncontrolled price method, resale price method, cost plus method, and comparable profits method. It finds that return on sales has been used as the transfer pricing benchmark and that Nestle's returns were within the arm's length range compared to comparable companies over a three-year period.
Key Takeaways:
Common Issues in Transfer Pricing
Issues relating to Transactions and Specified Items
Issues relating to Comparable and Assesments
Issues arising pursuant to Covid-19
This document discusses transfer pricing, which refers to the prices at which divisions within a company trade goods and services with each other. It outlines three main methods for determining transfer prices: cost-based pricing, market-based pricing, and negotiated pricing. The objectives, advantages, and disadvantages of transfer pricing are also examined. Key points covered include minimizing tax liability, maintaining divisional autonomy, and using transfer prices as a performance measurement tool.
The document discusses revenue recognition standards. It defines revenue as income from ordinary business activities like sales, fees, interest and dividends. Revenue is recognized when earned and realized/realizable, such as when goods/services are exchanged for cash. For long-term contracts, revenue can be recognized using percentage-of-completion or completed contract methods depending on certainty of costs and contract terms.
The amortization schedule shows the recovery of the lessor's investment in the leased asset over the lease term through both the lease payments and interest revenue.
LO 5 Describe the lessor’s accounting for direct-financing leases.
31
Accounting by the Lessor
Direct-Financing Method (Lessor)
Journal Entries:
1/1/07 Asset (cost) 245,000
Receivable from lessee 245,000
1/1/07 Cash 46,000
Interest revenue 19,900
Receivable from lessee 26,100
No manufacturer's profit or loss is recognized.
Interest method provides a constant periodic rate of
Ind AS 18 provides guidance on accounting for revenue. It aims to determine when to recognize revenue. Revenue is recognized when future economic benefits flow to the entity and can be reliably measured.
The standard addresses revenue recognition for sale of goods, rendering of services, and interest, royalties or dividends. For sale of goods, revenue is recognized when risks and rewards of ownership transfer. For services, revenue is recognized by reference to completion percentage. Interest is recognized using effective interest rate method, while royalties and dividends are recognized on an accrual basis.
The document also discusses concepts like deferred payment terms, non-cash transactions, and components of transactions. Disclosures required include revenue categories, accounting policies,
The document discusses suggested answers for the CA Professional Stage Knowledge Level exam for November-December 2016. It includes suggested answers on topics like assurance, accounting, taxation, business and finance, management information, business and company law, and information technology. The document is published by the Institute of Chartered Accountants of Bangladesh and contains the copyright information.
ENVIRONMENTAL ACCOUNTING CONCEPT AND REPORTING PRACTICEMasud Kaium
- Bangladeshi banks are increasingly recognizing the importance of environmental accounting and reporting (EAR), though EAR practices are still developing.
- From 2010-2014, EAR disclosures by banks improved, with more quantitative and qualitative information included in annual reports.
- While most banks now include some environmental information, reporting quality and consistency needs improvement. Mandatory EAR guidelines would help standardize and improve reporting.
- Key activities reported include tree planting, waste management programs, and green financing options. However, comprehensive and detailed EAR remains limited.
Transfer Pricing
Objectives of Transfer Pricing
Methods of Transfer Pricing
Cost Based Transfer Pricing
Market Based Transfer Pricing
Negotiated Transfer Pricing
Advantages and Disadvantages
Creative accounting refers to manipulating financial statements through flexibility in accounting rules to misrepresent the actual financial performance and position of a company. It can involve overstating revenues and assets or understating expenses and liabilities. While some view it as a legitimate way to provide clearer financial information, critics argue it misleads investors and other stakeholders for the benefit of managers. Common techniques include improper revenue recognition, manipulating reserves and provisions, and fiddling with acquisition values. Several major accounting scandals in the past involved billions in inflated or fake earnings through creative accounting.
This document provides an overview of transfer pricing. It defines transfer pricing as the price at which divisions of a company transact with each other. The document outlines several purposes of transfer pricing, including evaluating division performance and shifting profits between tax jurisdictions. It also discusses transfer pricing methods, influences on companies, disadvantages, and provides an example to illustrate how transfer pricing can benefit a company.
The course aims to provide students with an in-depth understanding of financial accounting issues and emerging accounting topics to exercise appropriate judgment in selecting and presenting accounting information. Students will learn to understand accounting frameworks and ethical codes, describe accounting standard provisions and principles, account for assets and liabilities, recognize revenue, account for income taxes, and prepare financial statements in accordance with standards. They will also develop arguments for accounting problems.
This document outlines the requirements and guidance for a first-time adopter of International Financial Reporting Standards (IFRS) as provided in IFRS 1. It discusses the objective, scope, definitions, recognition and measurement principles, mandatory exceptions and optional exemptions to retrospective application that a first-time adopter must consider. It also provides examples of the phased transition approach to IFRS adoption in Ethiopia, including transition dates and timelines for different entities.
Environmental accounting tracks the economic system's relationship with the environment by modifying national accounting systems. It accounts for natural resource use, pollution emissions, and the value of non-market environmental goods and services. Environmental accounting aims to identify environmental costs and revenues, reconcile conflicts between economic and environmental goals, and support more sustainable decision-making. It includes methods like natural resource accounts, emissions accounting, and disaggregating conventional accounts.
This document summarizes key aspects of Accounting Standard 19 (AS-19) related to accounting for leases in India. It discusses the differences between finance and operating leases, and the accounting treatment for lessors and lessees under each. It also covers sale and leaseback transactions, tax implications, and disclosure requirements as per AS-19.
Overview of Transfer Pricing in India - EY IndiaSadanandGahivare
Read about transfer pricing in India & its applicability which can help you build and implement the structure that makes sense for your business & to manage the cost of trade.
This document discusses methods for measuring and controlling assets employed in business units. It describes two main methods - return on investment (ROI) and economic value added (EVA). ROI is a ratio that compares income to assets employed, while EVA is a dollar amount that subtracts a capital charge from net operating profit. The document explores how different types of assets like cash, receivables, inventories, property/equipment should be treated in the calculation. It also addresses topics like how to treat leased assets, idle assets, intangible assets, and noncurrent liabilities. The goal of accurately measuring assets employed is to motivate managers and provide useful information for decision making.
The document discusses tax planning considerations for owning or leasing assets, repairing vs replacing assets, decisions to make or buy products, and tax provisions related to shutting down a business. It provides guidance on comparing the present value of cash outflows for owning vs leasing, when it is preferable to lease vs own, and how to treat the sale of former research assets. It also outlines tax treatments and deductions allowed for repairs, and considerations for shut down like set-off of losses and depreciation.
IAS 18 provides guidance on accounting for revenue. It defines revenue as the gross inflow of economic benefits during an accounting period from ordinary activities. Revenue is recognized when it is probable future economic benefits will flow to the entity and these benefits can be measured reliably. Revenue is measured at the fair value of consideration received, taking into account the stage of completion for services and the transfer of risks and rewards of ownership for goods. The standard also provides disclosure requirements around revenue recognition policies and accounting estimates.
This article is on certain peculiar transfer pricing issues in Media & Entertainment. This article has been recently appeared as one of the chapter of the book on ‘Media & Entertainment Industry’ published by All India Federation of Tax Practitioners (AIFTP).
The entire book contains various issues on Direct tax, Indirect tax, International tax & IFRS in Media & Entertainment Industry.
This document summarizes the key transfer pricing regulations and methods that are relevant for analyzing Nestle's intercompany transactions. It discusses the arm's length standard, best method rule, and methods like the comparable uncontrolled price method, resale price method, cost plus method, and comparable profits method. It finds that return on sales has been used as the transfer pricing benchmark and that Nestle's returns were within the arm's length range compared to comparable companies over a three-year period.
Marketing Intangibles - A Critical analysis of the transfer pricing debateAjit Kumar Jain
This document provides an overview of the issue of marketing intangibles in transfer pricing. It discusses the meaning and types of marketing intangibles, as well as legal and economic ownership of intangibles. The key issue examined is whether excess advertising, marketing and promotion expenses incurred by an Indian subsidiary of a multinational enterprise constitute an international transaction and if the subsidiary is economically entitled to the marketing intangibles created. The document outlines the debate on this issue under Indian transfer pricing regulations and international guidance. It also summarizes various judicial precedents and evaluates open questions on characterizing excess expenses, benchmarking such expenses, and the application of the issue to manufacturers.
The document discusses various pricing strategies and considerations including psychological pricing, cost-based pricing, competitor-based pricing, and promotional pricing. It also covers pricing objectives, factors that influence pricing decisions, and common problems in setting prices. Examples and case studies are provided to illustrate pricing concepts along with references for further reading.
The document discusses various pricing strategies and concepts. It compares strategies like skimming pricing, penetration pricing, and competitive pricing. It also describes how prices are quoted, such as list prices and discounts. Finally, it discusses pricing policies, relationships between price and quality, global pricing strategies, and characteristics of online pricing like cannibalization and bundle pricing.
A Guide to SlideShare Analytics - Excerpts from Hubspot's Step by Step Guide ...SlideShare
This document provides a summary of the analytics available through SlideShare for monitoring the performance of presentations. It outlines the key metrics that can be viewed such as total views, actions, and traffic sources over different time periods. The analytics help users identify topics and presentation styles that resonate best with audiences based on view and engagement numbers. They also allow users to calculate important metrics like view-to-contact conversion rates. Regular review of the analytics insights helps users improve future presentations and marketing strategies.
1) The document discusses methods for estimating beta including the direct method using covariance and market model using regression of security returns on market returns.
2) Betas may not remain stable over time for a company due to changes in products, technology, competition or market share.
3) A company's beta is influenced by its operating and financial leverage as well as the nature of its business in terms of earnings variability and cyclicality.
4) Beta is used to determine the cost of equity capital for a company using the Capital Asset Pricing Model formula. Industry betas are preferable for companies that closely match the industry but company betas are better for those with unique operations.
The document discusses accounting standards issued by the Institute of Chartered Accountants of India (ICAI). It provides information on the Accounting Standards Board established by ICAI and its role in preparing accounting standards for proper recognition, measurement, treatment, presentation and disclosure of accounting transactions in financial statements of organizations. The document also covers the scope and objectives of various individual accounting standards.
Baml housing investor presentation final (12 09 15)masoniteinvestors
- Masonite reported strong Q3 2015 results, with net sales increasing 5.4% excluding foreign exchange and Adjusted EBITDA growing 42% versus Q3 2014.
- Gross profit margin expanded 450 basis points to 18.4% due to pricing strategies and operational improvements.
- The company continues its business transformation through European acquisitions and divestitures, expanding its product portfolio and customer base.
- With its balanced growth strategy producing results, Masonite is well positioned despite an uneven housing market recovery.
Masonite reported strong third quarter 2015 financial results, with net sales increasing 5.4% and adjusted EBITDA growing 42%. The company has demonstrated six consecutive quarters of adjusted EBITDA growth through strategic focus on pricing, portfolio optimization, and sales and marketing excellence. Recent acquisitions in Europe have transformed Masonite's European business toward customized door solutions and specialized sectors.
This document compiles 21 issues of a tax audit series published between July 2018 to present. It combines the content of the series which covered various clauses in Form 3CA and 3CB. The compilation is done in 21 sections corresponding to each issue. It provides a consolidated resource for professionals on reporting requirements for tax audit.
Masonite reported strong financial results for Q3 2015, with Adjusted EBITDA growth of 42% and Adjusted EBITDA margin expansion of 310 basis points. The company continues to optimize its portfolio through European acquisitions and divestitures. Masonite maintains a strong balance sheet and liquidity position to support its growth strategy.
Accounting Standard 17 outlines requirements for segment reporting in India. It aims to provide information on different types of products/services and geographical areas to better understand enterprise performance and assess risks/returns. Key terms define segments as distinguishable components subject to different risks/returns. A reportable segment must contribute over 10% of certain financial metrics. Enterprises must disclose financial information for each reportable segment including revenue, assets, liabilities, capital expenditures, and depreciation.
Solution Manual Advanced Accounting 9th Edition by Baker Chapter 13Saskia Ahmad
This document provides answers to questions about segment and interim reporting. It discusses the purpose of segment reporting and the criteria for determining reportable segments. It also addresses accounting issues related to interim reporting, including recognizing revenue and expenses, inventory valuation, and allocating costs between interim periods. Matching revenue and expenses, accounting for long-term contracts and other items in interim statements is also examined.
This document outlines standards for segment reporting. It defines key terms like business segment, geographical segment, and reportable segment. A business segment provides individual products/services subject to different risks than other segments. A geographical segment operates in different economic environments with differing risks. The standard provides that an enterprise should use its organizational structure and internal financial reporting to identify segments. It also defines terms like segment revenue, expense, result, assets, and liabilities to specify what should be reported for each segment.
The document provides questions and answers regarding segment and interim reporting requirements. It discusses how companies must determine reportable segments based on certain revenue, profit, and asset tests. It also outlines accounting treatments for revenue, expenses, taxes, and other items for interim financial statements. Companies must follow specific rules for disclosing segment information, foreign operations, significant customers, and accounting changes in interim reports.
Working capital adjustments are made when comparing a tested party's transactions to potential comparable transactions to eliminate material differences in working capital levels like inventory, receivables, and payables. A working capital adjustment calculates the value of the working capital differences using an appropriate interest rate to adjust the profit of the comparable. Courts have upheld working capital adjustments but they must be reasonably accurate and eliminate material differences on a case by case basis.
A Study of Disclosure of Accounting Policies in BAJAJ Allianz Insurance Compa...employee goverment
The document discusses various ratios used to analyze and compare the financial performance of Bajaj Allianz Life Insurance Company and ICICI Prudential Life Insurance Company over several years. It provides data on ratios such as premium to total income, surplus to total income, total income to investment, revenue to total income, current ratio, leverage ratio, and profitability ratio. The analysis finds that Bajaj Allianz generally has better ratios compared to ICICI Prudential, indicating stronger financial performance and health. However, Bajaj Allianz's net profit ratio declined in 2014, which is a cause for concern.
The document discusses a cost plus model for remunerating business partners or distributors. It proposes a 5 step process: 1) identify required services, 2) identify structure to deliver services, 3) determine costs of structure and services, 4) ensure distributor basic profit relates to costs incurred, 5) determine sales levels to calculate commissions. Additional profit is tied to achieving key performance indicators to incentivize cost reduction and growth while ensuring equitable remuneration.
The document discusses value creation from both a theoretical and practical perspective. It defines value creation as earning economic profits that exceed the cost of capital. From a theoretical standpoint, it discusses using capital budgeting techniques to evaluate existing operations and identify opportunities to improve returns, grow profits, fix underperformers, or exit businesses. Practically, it outlines a five-step process to apply value creation analysis: 1) model company operations, 2) prioritize key value drivers, 3) evaluate opportunities, 4) implement changes, and 5) measure results and revise the analysis over time on a continual basis. The goal is to ensure economic profits exceed costs to maximize value creation.
The economic valuation of the negative externalities associated with tourism could help manage emerging social conflicts in major European travel destinations. Citizens' associations in places like Venice, Barcelona, and Mallorca have criticized the environmental and social costs of large tourist crowds on local residents' quality of life. Quantifying the negative externalities of tourism through economic valuation techniques may provide useful information for balancing the interests of locals and the tourism industry. This could play a role in more sustainable management of tourism in these areas.
The document introduces the ADDING value scorecard as a tool for assessing international business strategy. The scorecard breaks down value creation into six components: Adding volume, Decreasing costs, Differentiating, Improving industry attractiveness, Normalizing risks, and Generating knowledge. For each component, guidelines are provided for analysis, such as unbundling costs, assessing the effects of volume, and accounting for cross-country differences. The scorecard is intended to facilitate robust evaluation of global strategies and avoid errors like focusing too narrowly on size-based metrics.
Analysts frequently make adjustments to company financial statements to reflect a true and fair view, enable comparability between companies, and account for differences in accounting treatments. Key adjustments include reclassifying certain income/expenses as operating or non-operating, adjusting depreciation and revaluation reserves, treating goodwill and intangibles appropriately, and accounting for off-balance sheet items like operating leases. Analysts scrutinize areas like depreciation policies, impairment losses, and internally generated intangible assets to determine if reported numbers require adjustment. The purpose is to arrive at financial metrics that best indicate a company's performance, position, and credit risk.
- International Financial Reporting Standards (IFRS) provide a single set of accounting standards that are used by over 100 countries, including members of the European Union and parts of Asia. India is also moving companies towards adopting Ind AS, which are converged with IFRS.
- Transitioning to Ind AS/IFRS can be a long and complex process with many challenges. It requires changes to financial reporting, policies, processes, systems, and controls that may impact organizations. It also requires the retroactive restatement of historical periods.
- For the IT industry, key challenges of adopting Ind AS/IFRS include changes to revenue recognition, share-based payments, income taxes, and additional disclosure requirements. Proper planning is
The document discusses the challenges that companies in the IT industry will face when transitioning to Indian Accounting Standards (Ind-AS), which are based on International Financial Reporting Standards (IFRS). Some of the key challenges include changes to revenue recognition, share-based payments, income taxes, and first-time adoption requirements. Revenue recognition under Ind-AS/IFRS may differ from current Indian standards. Share-based payments also have retrospective implications and complex measurement requirements. Adopting Ind-AS will also impact tax accounting and require companies to restate historical financial statements. The transition process will be long and require changes to financial reporting, systems, controls and other business processes.
Similar to Losses & Low profits- A Transfer Pricing perspective (20)
सुप्रीम कोर्ट ने यह भी माना था कि मजिस्ट्रेट का यह कर्तव्य है कि वह सुनिश्चित करे कि अधिकारी पीएमएलए के तहत निर्धारित प्रक्रिया के साथ-साथ संवैधानिक सुरक्षा उपायों का भी उचित रूप से पालन करें।
Sangyun Lee, 'Why Korea's Merger Control Occasionally Fails: A Public Choice ...Sangyun Lee
Presentation slides for a session held on June 4, 2024, at Kyoto University. This presentation is based on the presenter’s recent paper, coauthored with Hwang Lee, Professor, Korea University, with the same title, published in the Journal of Business Administration & Law, Volume 34, No. 2 (April 2024). The paper, written in Korean, is available at <https://shorturl.at/GCWcI>.
Synopsis On Annual General Meeting/Extra Ordinary General Meeting With Ordinary And Special Businesses And Ordinary And Special Resolutions with Companies (Postal Ballot) Regulations, 2018
What are the common challenges faced by women lawyers working in the legal pr...lawyersonia
The legal profession, which has historically been male-dominated, has experienced a significant increase in the number of women entering the field over the past few decades. Despite this progress, women lawyers continue to encounter various challenges as they strive for top positions.
Lifting the Corporate Veil. Power Point Presentationseri bangash
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Losses & Low profits- A Transfer Pricing perspective
1. 235International Taxation Vol. 13 September 2015 35
A Transfer Pricing Perspective
Ajit Jain*
* Ajit Jain is a Chartered Accountant.
– All the views in the article are personal
I. Background
In the current business scenario, incurring losses or low profits in
business are not said to be very abnormal if the losses are incurred for
a limited period of time. There could be various commercial reasons
behind any business losses. Losses or low profits are incurred by
entities having control or related party transaction and also incurred
by the independent parties. Therefore, on a macro level, if the losses
or low profits are explainable, by no means, the losses indicate that
the business behaviour of the taxpayer is conflicting with the arm’s
length principle.
The key objective of the arm’s length principle is that the transaction
between the taxpayer and its AE should be at arm’s length price. Where
the profit based methods (TNMM or PSM) are the most appropriate
methods for computing the arm’s length price, profitability earned by
the taxpayer becomes key area of consideration while justifying the
arm’s length price of its related party transactions.
Losses/low profits incurred by taxpayers are a trigger for transfer
pricing adjustments in India. Indian transfer pricing authorities are
very much concerned about the erosion of tax base in India, the
profit position of the taxpayer is the prime focus for them. The tax
authorities expect profitability and tend to associate low profits/losses
with inappropriate pricing of cross border transactions between the
taxpayers and its Associated Enterprises (‘AE’s).
Defending such cases during assessment proceedings and establishing
that the lower profits/losses are a result of extraneous business/
commercial factors and not non arm‘s length pricing of intra-group
transactions poses challenges.
TRANSFER PRICING
2. 236 International Taxation Vol. 13 September 2015 36
In this article, I have dealt with the various
economic factors that cause losses and the
arm’s length response to them. For the sake
of clarity it should be noted that for the
purpose of this document, the term ‘‘losses’’
shall include cases of low profits.
II. Arm’s Length Principles and Losses
Indian transfer pricing regulations do not
provide any specific guidance for determining
the arm’s length price in case of losses. We
can draw guidance from the following Para
of the OECD’s transfer pricing guidelines:
“1.70 When an associated enterprise consistently
realizes losses while the MNE group as a
whole is profitable, the facts could trigger
some special scrutiny of transfer pricing
issues. Of course, associated enterprises,
like independent enterprises, can sustain
genuine losses, whether due to heavy
start-up costs, unfavourable economic
conditions, inefficiencies, or other
legitimate business reasons. However,
an independent enterprise would not be
prepared to tolerate losses that continue
indefinitely. An independent enterprise
that experiences recurring losses will
eventually cease to undertake business
on such terms. In contrast, an associated
enterprise that realizes losses may remain
in business if the business is beneficial
to the MNE group as a whole.”
Based on the above guidance, in an independent
scenario, any entity cannot continue to incur
losses for a longer period, it will eventually
cease to exist. However, in a controlled
situation, the AE may continue to incur
losses comparatively for a longer period, if
its business is beneficial to the group as a
whole. Therefore, the key thing to evaluate
is whether the AE incurs losses due to
non-arm’s length pricing of intra-group
transactions or the losses are incurred due
to certain business or commercial rationale
(e.g. start-up costs, unfavourable economic
conditions, inefficiency etc.) not influenced
by the related party relationship. In case the
losses are incurred due to certain commercial
reasons and for a limited period of time,
the same can be justified or defended from
arm’s length perspective.
Characterisation of entity also important
while performing arm’s length analysis for
a loss making entity. Being an entrepreneur,
if any entity incur losses, this may not be
considered as unusual, since entrepreneurs
are prone to the various risks of business
and they are responsible for profit/losses
in their businesses. Accordingly, it is very
important to document the detailed FAR
of entity which shows that the entity has
performed functions and assumed risk being
an entrepreneur.
As mentioned earlier, business may incur
losses due to various commercial reasons. In
many situations, it is not possible to identify
the reasons for losses since losses are driven
by external circumstances. However, following
are the key commercial reasons due to which
any entity may incur losses:
Start-up losses ;
Business strategies ;
Economic downturn/recession ;
Foreign exchange losses ;
Other reasons
Start-up Losses
Any business in start-up phase need to
incur heavy expenditure for the purpose
of establishing in the market and this may
results into operating losses.
The start-up losses can be justified from a
transfer pricing perspective if the same are
incurred for a limited period of time and if the
cost of investment result into expected future
revenue. The start-up losses are explained
with the following example:
Transfer Pricing
3. 237International Taxation Vol. 13 September 2015 37
A Ltd. is a company based in USA engaged
in manufacturing of consumer products. A
Ltd. set up a subsidiary B. Ltd. in India.
B Ltd. operates as a licensed manufacturer
in India, it imports raw materials from A
Ltd. and utilise the same for the purpose
manufacturing the finished products for
selling to the third-party customers in India.
B Ltd. also pays royalty to A Ltd. for the
use of technology owned by A Ltd. In the
first two years of operations, as a part of
its expansion strategies, B Ltd. invests heavy
capital in India. Further, B Ltd. also incurs
significant marketing expenses to reach out
to the target customers in India. Due to all
these reasons, B Ltd. incurs operating losses
for the first two years of its operation.
The tax authorities may accept start-up losses
for a limited period of time, provided the
losses are genuinely supported by sufficient
documentary evidences showing business
rationale. Following documents can be useful
for justifying the losses from business and
commercial perspective:
Budget/projections/forecast level/ex-
pected demand
Report on market dynamics – size, de-
mography and competitors
Documenting a detailed functional de-
scription of taxpayer which clearly reflect
its functions related to start-up phase
Search for comparables in start-up phase
Use an appropriate sales revenue filter
Economic adjustments – capacity utiliza-
tion adjustment, working capital adjust-
ment, risk adjustment, etc.
Any other document for supporting
losses from business and commercial
perspective
For defending start-up losses, it is utmost
important to document the relevant data
which supports the business & commercial
rationale for start-up losses. Further, one
should perform the comparability analysis by
considering various factors which differentiate
the FAR profiles of the taxpayer and the
potential comparable companies. Based on
the same, one can apply quantitative filters,
perform economic or comparability adjustment
to arrive at most reliable comparables.
Business Strategies
Business strategies involve- any new product
development, diversification, marketing
penetration strategies etc. Implementing such
business strategies either require investment
of capital or loss of income opportunity for a
limited period. Loss due to business strategies
is explained with the following example:
A manufacturing entity in USA (A Ltd.) has
a distribution subsidiary in India (B Ltd.).
B Ltd. imports finished products from its
holding company and distributes in India. B
Ltd. operates as a full-fledged distributor. It
bears marketing risk related to its business
in India and undertakes key decisions for
its business in India. As a part of marketing
penetration strategies, B Ltd. launches products
in India comparatively at lower price to
attract customers. Further, B Ltd. also incurs
significant advertisement & marketing expenses.
Due to discounted price of products and high
advertisement & marketing expenses, B Ltd.
incurs operating losses.
In this regard, we refer to the following para
of OECD transfer pricing guidelines:
“Recurring losses for a reasonable period
may be justified in some cases by a
business strategy to set especially low
prices to achieve market penetration.
For example, a producer may lower the
prices of its goods, even to the extent of
temporarily incurring losses, in order to
enter new markets, to increase its share
of an existing market, to introduce new
products or services, or to discourage potential
competitors. However, especially low
prices should be expected for a limited
period only, with the specific object of
improving profits in the longer term.
If the pricing strategy continues beyond
4. 238 International Taxation Vol. 13 September 2015 38
a reasonable period, a transfer pricing
adjustment may be appropriate, particularly
where comparable data over several years
show that the losses have been incurred for a
period longer than that affecting comparable
independent enterprises.”
In view of the above para, losses arising from
market penetration strategies can be accepted
for a limited period of time provided the
losses are genuinely supported by sufficient
documentary evidences showing business
rationale.
The taxpayer should maintain all the relevant
documents pertaining to the its business
strategies and the profitability potential e.g.
third party feasibility study reports, future
profitability projections, market share of the
product etc. The taxpayer should also consider
economic adjustments while performing the
comparability analysis.
Economic Downturn
Economic downturn or recession can be the
external cause for low profitability or losses.
Current economic downturn considered to be
major one which resulted into decrease in
sales, constrained profit margins, consolidated
losses, closure of business units etc.
Following considerations may be useful if
there are losses in the scenario of economic
downturn:
Use of multiple year data to consider the
impact of business and economic cycle
in which the comparable went through.
Performing an in-depth industry analy-
sis which reflect the actual position of
taxpayer’s industry, challenges faced
by industry, future forecast etc. This
could be very important to show that
the adverse financial results are due to
non-transfer pricing factors.
Capacity utilization adjustments- Due to
recession, if taxpayer has underutilized
its manufacturing capacity it can per-
form capacity adjustments vis-à-vis the
comparable companies.
Re-location of plants, production lines,
warehousing facilities to the AEs location,
centralising certain functions etc. However,
while considering these restructuring
options, the taxpayers should be aware
about the possible transfer pricing and
tax treatment of business restructuring.
In economic downturn, going for an
Advance Pricing Agreement (‘APA’)
can also be an important step by the
taxpayer, since the scenario gives oppor-
tunity to the taxpayer to negotiate with
APA authorities in more advantageous
conditions.
Recession gives an appropriate time to consider
whether the transfer pricing model/policy meets
the need of MNE and accordingly respond
to the changing global market conditions.
Taxpayers can consider efficient business
model in the era of economic downturn to
achieve a most tax efficient answer.
As a part of implementing revised transfer
pricing model/policy, the taxpayer may consider
business restructuring (e.g. converting licensed
manufacturer to a contract manufacturer),
use of profit split method etc. Any change
in transfer pricing model/policy must have
economic substance and should be implemented
only after performing in-depth analysis from
tax, transfer pricing and other regulations
perspective.
Other reasons
In addition to the above mentioned reasons,
there may be certain other reasons behind
business losses e.g. product specific losses,
losses due to R&D failure, poor business
management, quality issues, competition,
foreign exchange etc.
Although the facts behind the above losses
may be different, however the fundamental
part of transfer pricing treatment is similar
i.e. the taxpayer needs to maintain robust
Transfer Pricing
5. 239International Taxation Vol. 13 September 2015 39
documents in order to co-relate the losses with
the business realities in case the losses are
incurred due to non-transfer pricing reasons.
IV. Other Considerations
Based on the facts of each case, the taxpayer
may also consider following approaches while
performing arm’s length analysis of a loss
making entity:
Use of Comparable Uncontrolled Price
(‘CUP’) Method- In case of losses, if
there are reliable comparable data avail-
able, the taxpayer may choose to select
CUP as the most appropriate method for
benchmarking its international transac-
tion. If CUP method is considered as
most appropriate method, taxpayer’s
profitability at net level may not be
challenged.
Use of multiple year data – As men-
tioned earlier, the taxpayer may use
multiple year data of the comparables
to consider the impact of business and
economic cycle in which the comparable
went through.
Differential Depreciation adjustments- If
the taxpayer has charged depreciation
at the rate higher than those prescribed
under the Companies Act, depreciation
adjustment can be allowed in computing
the operating margin of the taxpayer.
Cash profit/sales ratio- Cash profit
is operating profit plus depreciation,
amortization, non-cash expenses such
as provisions. Using cash profit ratio
enhances the comparability between
the tested party and comparables by
excluding non-cash expenses if these
expenses cannot be adjusted for differ-
ences. Applying cash profit ratio can be
appropriate in case of start-up companies
having high depreciation cost.
Foreign AE as the tested party- Where
the taxpayer, being an entrepreneur,
incurs losses and its AEs are operat-
ing as low risk entities, the AEs can
be considered as the tested parties for
determining the arm’s length price of
the transaction between the taxpayer
and its AEs. In such scenario, taxpayer’s
operating losses may not be considered
for the purpose of arm’s length analysis.
Identification of abnormal/non-operating
cost- While computing the taxpayer’s
operating margin for the purpose of
arm’s length analysis, it is important
to carefully identify abnormal and non-
operating expenses. Such expenses should
not form part of margin computation,
since it may result into losses or lower
profits. E.g. foreign exchange gain or
loss may have significant impact on the
profitability of the taxpayer based on
its nature (operating or non-operating).
While performing arm’s length analysis of
the entity incurring the losses, it is very
important to stick to the fundamentals of
the transfer pricing principles. The taxpayer
should maintain relevant documents to show
that the losses are due to non-transfer pricing
reasons. Further, if there are differences
between the taxpayer and its comparable
companies, the taxpayer should perform
required comparability adjustments to arrive
at the most reliable results.
V. Sharing of losses
In case where the losses are on account of
non-arm’s length pricing, the key question to
be answered is – can the losses be shared
between the taxpayer and its AEs, which are
part of affiliated non-arm’s length transaction.
In this scenario, it is important to evaluate
the FAR profile of the taxpayer and its AEs
for proper allocation of risks and returns.
As per the OECD’s draft publication on
‘Transfer Pricing Risk Assessment’, losses
should be allocated based on the way risks
and functions are allocated among participants
to any given inter-company transaction. E.g.
in a value chain, entity performing routine
6. 240 International Taxation Vol. 13 September 2015 40
functions earning high profits and another
entity performing critical functions, incurring
losses.
Thus, the transfer pricing outcome should
be in line with the value creations and any
allocation of losses between the AEs should
be made only after detailed evaluation of
their functions and risks.
VI. Way Forward
Incurring losses are not per se any issue, but it
requires explanations. The fundamental part is
to evaluate the rationale for losses i.e. whether
the losses are due to non-transfer pricing
reasons or due to the pricing arrangement
of the international transactions between
the taxpayer and its AEs. While performing
transfer pricing analysis under any of these
scenarios, drafting detailed FAR analysis and
maintaining the relevant documentations are
the key things for the taxpayer. If the losses
are incurred due to external commercial
factors, the same should be reflected in the
industry analysis performed for the purpose
of transfer pricing documentation.
If there are continues losses, the taxpayer
can re-look at the existing transfer pricing
model/policy of its company or the group as
a whole and can consider new model/policy
consistent with the roles & responsibilities of
the taxpayer and its AEs.
Transfer Pricing