France Intercompany Recharges

Before I proceed on the overview of my process, please let me share to you my understanding about
transfer pricing since we all know that were doing all the process of calculation, invoicing and settling
accounts in line with transfer prices. Transfer Pricing pertains to amount charged by one division selling
goods/services to another division

The purpose of intercompany accounting is to allocate assets, liabilities, revenues, and expenses to the appropriate
legal entity in relation to the economic benefits and obligations associated with the operational activity incurred.

Cost Plus Price

Full Cost+Desired Profit= Cost Plus price

Variable cost- fluctuates over time

Transfer prices should be set to minimize profits in high-tax countries and

maximize them in low-tax countries

High transfer price if buyer is in a higher-tax country than the seller

Direct Cost

price that can be completely attributed to the production of specific goods or

services. Direct costs refer to materials, labor and expenses related to the
production of a product. Other costs, such as depreciation or administrative
expenses, are more difficult to assign to a specific product, and therefore are
considered indirect costs.
Indirect Cost
A cost or expense that is not directly traceable to a department, product, activity, customer, etc

The cost plus method begins with the costs incurred by the supplier of property or
services in
a controlled transaction for property transferred or services provided to an
associated enterprise. An
appropriate mark-up, determined by reference to the mark-up earned by suppliers
in comparable
uncontrolled transactions, is then added to these costs, to make an appropriate
profit in light of the
functions performed and the market conditions. Such arms length mark-up may be
determined by
reference to the mark-up that the same supplier earns in comparable uncontrolled
transactions (an
internal comparable), or by reference to the mark up that would have been
earned in comparable
transactions by an independent enterprise (external comparable). In general, the
mark-up in a cost
plus method will be computed after direct and indirect costs of production or supply,
but before the
operating expenses of the enterprise (e.g. overhead expenses).
12. Thus, in a cost plus method, the mark-up on costs that the manufacturer or
service provider
earns from the controlled transaction is compared with the mark-up on costs from
comparable
uncontrolled transactions.

13. This method probably is most useful where:

i) goods are sold by a manufacturer that does not contribute valuable unique
intangible
assets or assume unusual risks in the controlled transaction, such as may be the
case
under a contract or toll manufacturing arrangement; or
ii) the controlled transaction is the provision of services for which the provider does
not
contribute any valuable unique intangible assets or assume unusual risks.

July 2010 Page 6

The Transactional Net Margin Method (see TPG paragraphs 2.58-2.107)
14. The transactional net margin method (TNMM) examines a net profit i

Transfer pricing is the setting of prices among divisions within an enterprise.

Transfer prices are charges for goods and services between controlled (or related)
legal entities, i.e., within an enterprise. Legal entities considered under the control of a
single corporation include branches and companies that are wholly or majority owned
ultimately by the parent corporation. Certain jurisdictions consider entities to be under
common control if they share family members on their boards of directors.
In principle a transfer price should match what the seller would charge an
independent, arms-length customer. While unrealistic transfer prices do not affect the
overall enterprise directly, they become a concern when they are misused to lower
profits in a division of an enterprise that is located in a country that levies high taxes,
and raise profits in a country that levies no or low taxes, as a tax haven.[1] Transfer
pricing is the major tool for corporate tax avoidance
ransfer prices are significant for both taxpayers and tax
administrations because they determine in large part the income

and expenses, and therefore taxable profits, of associated

enterprises in different tax jurisdictions.