Transfer Pricing: Mechanism, Consequences for the State Budget, Regulation

Nowadays, multinational companies are using transfer pricing more and more frequently as a tool for setting internal prices for products and services. Transfer pricing occurs implicitly to the public, but has rather serious consequences for the government. In recent years, this tool has become widespread, resulting in companies minimizing their tax base and moving money from one country to another, which leads to country-based tax competition. Detecting transfer pricing abuses is a difficult and costly task for tax authorities. Nevertheless, transfer pricing regulation itself is a complex mechanism involving many actors. Governments around the world develop and implement tax control instruments to minimize government budget losses from transfer pricing. At the same time, the instruments introduced have both strengths and weaknesses, which, in turn, can affect the tax control process as a whole to a greater or lesser extent. This study will focus on the problems of tax control and the costs to the state. The study will be conducted using qualitative methods, namely analysis of tax law provisions, analysis of court cases, and estimation of potential costs. The study will analyze the risks for Russia in the analysis of problems and costs of tax control of transfer pricing. The purpose of this work is to identify a set of control problems and potential costs. First, the provisions of tax law will be analyzed to outline the main terms, as well as to highlight the main methods of tax control. Next, the foreign court practice on TP will be analyzed. The subsequent part of the work will focus on the Russian experience of tax regulation of TP, and the main problems and costs of tax control will be identified.