Transfer Pricing

What is transfer pricing?

• The process of setting prices for goods and services sold between controlled or related parties

• The process of setting prices for goods and services sold to external customers

• The process of transferring ownership of a company

• The process of pricing products after they have been imported

What is the ‘arm’s length principle’ in transfer pricing?

• The principle that transactions between related parties should be valued as if they were between unrelated parties

• The principle that all intercompany transactions must be physically measured 

• The principle that related parties must maintain a physical distance in business dealings 

•  The principle that companies should extend their reach into new markets

Who is a related party?

• The entities with more than 50% shareholding directly or indirectly 

• The entities with more than 50% control directly or indirectly 

• Both A and B

• None of the above

Company ABC has a branch in freezone. Should the transactions comply with arms length principle?

• No, branch and parent is one and the same

• Yes, to ensure that the transactions are conducted as if the parties were unrelated

• No, as the branch is a domestic branch

• None of the above

A single owner LLC company functions with the shareholder who is also the director and his friend who helps in its operations. Identify the connected persons.

• Owner only

• Owner and the Operation manager

• Operation manager only

• None of them are connected persons

Company ABC is owned by 2 individuals with equal shareholding. Who can be considered as related parties.

• No further related parties

• Related within the fourth degree of kinship or affiliation, including by way of adoption or guardianship

• Only the individuals who share the same last name

• Related within the first degree of kinship or affiliation, including by way of adoption or guardianship

Company ABC is a family business, the father owns 90% of the company with 10% each for his daughter and wife, the sons manage the business along with the dad, though strategic decisions are made by Dad alone. Identify connected persons.

• All of the them

• Dad, Wife, Daughter

• Dad and Sons

• Dad only

Company ABC has a related party which is a QFZP. Will the entities need to transact at ALP?

• Yes, as they are taxed at different tax rates

• No, both entities are within the same jurisdiction

• No, ALP is required only for specific transactions