Determining market prices
Determining market prices is the service of a tax consultant from AGTL Kharkiv, Kyiv, Odessa.
Transfer pricing rules set five methods for determining market price to determine taxable income in transactions whose parties are interdependent persons:
- The method of comparable market prices;
- The price method for later implementation
- Cost-effective method
- The method of comparable profitability;
- profit-sharing method.
In a one-time transaction, the market price can be determined by an independent valuation, but only if none of these methods can be applied to such a transaction.
The application of each method is possible only in a strict sequence, that is, the tax law establishes that each subsequent method (or group of methods) of pricing is applied in case it is not possible to apply the previous one. The rationale for the choice of method and how it is used requires a high level of expertise and sufficient experience with transfer pricing legislation, as well as specific information equipment and access to databases. This is a collaboration between economists and lawyers.
Are you afraid to make a mistake in confusing TC regulation?
Our experts will help to determine the most correct and profitable methodology for the client’ definition of the market price, as well as to prepare a justification for the choice of method for its definition. We work with the specifics of your business, its assets and functional communication between companies. The technology of requests and information analysis was developed by us specifically for the implementation of this type of service. If necessary, we also arrange an asset valuation by the professional appraisers – our partners.
Determining market prices – what is it?
The market price is the average arithmetic price of a proposed product or service in a particular market (for example, for a specific period of time).
The market price corresponds to the equilibrium only in the conditions of perfect competition. Excess of market price over equilibrium is typical for market monopolization. A reduction in the market price below the price of equilibrium (for example, in the case of state price regulation) leads to a deficit, as it becomes unprofitable for sellers to bring goods to the market.
The market price of goods (work, services) is recognized as the price created by the interaction of supply and demand in the market of identical (and in their absence – homogeneous) goods (works, services) in comparable economic (commercial) conditions.
Identical and homogeneous
Products that have the same basic characteristics are recognized as identical. In determining the identity of goods are taken into account, in particular, their physical characteristics, quality and reputation in the market, country of origin and manufacturer. At the same time, minor differences in their appearance may not be taken into account.
Uniforms are recognized as products that are not identical, have similar characteristics and consist of similar components, allowing them to perform the same functions and/or be commercially interchangeable. In determining the homogeneity of goods are taken into account, in particular, their quality, the presence of a trademark, reputation in the market, country of origin.
For tax purposes, the price of goods, works or services specified by the parties to the transaction is used, unless otherwise provided. Until the opposite is proved, it is assumed that this price corresponds to the level of market prices.
Why is such attention paid to the price of a deal, you ask? So everything is quite natural. Income tax, VAT and duties depend on the size of the transaction price. That is why the tax authorities are so pedantic in checking the correctness of setting the price of the transaction and determining market prices.
We will advise you, help you organize accounting support, choose a tax system, and if necessary – check the processes of organizing your business on legal, accounting, tax, as well as financial issues. And believe me, your money will certainly come back to you.
Call! +38 (050) 676-34-45, +38 (098) 028-08-51.