- 20 Marks
IT – Aug 2020 – L1 – Q2 – Transfer Pricing Principles
Discuss importance of arm's length principle, its difficulties for MNEs, and alternative approaches.
Question
a) How important is the arm’s length principle in international taxation? Identify two difficulties that it presents for multinational enterprises? Is there a better approach?
b) Eyra MA Limited a resident company in Singapore has several subsidiaries across the globe including Elik EM Engineering Limited in Ghana. Eyra MA Limited provides engineering, procurement and construction management services as its core business. The group’s global value chain include manufacturing, distribution, marketing and sales, research and development, procurement, logistics, financing, administration, after sales service, and human resource management. Eyra MA Limited has an intra-group services policy which stipulates that a holding company provides the services for related entities within the group on the basis that such an arrangement is beneficial to the group as a whole.
Required
i. Explain direct and indirect charging, and provide examples in the context of intra-group services within Eyra MA Limited.
ii. Identify potential chargeable group services, and non-chargeable services within the group structure.
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