Transfer pricing

Raw material costs should be estimated by direct computation from flow rates and material prices. The flow rates are deterrnined from flow sheet material balances. The unit prices are obtained from vendors, company purchasing departments, or the Chemical Marketing Reporter. For captive raw materials produced internally, a suitable transfer price must be estabHshed. Initial catalyst charges can be treated as a start-up expense, working capital component, or depreciable capital, depending on the expected catalyst life and cost. Makeup catalyst is frequendy treated as a raw material. 

Transfer pricing of intermediates produced and used internally in the same organization comes under product costs. Even the choice of name, ie, transfer cost or transfer price, reflects the differing viewpoints of the internal consumer and producer. 

Once the volume of raw material is set. the price must be estimated. In some studies, a captive source is available with a set transfer price. In other studies, contracts for raw materials will be far enough along to establish the price. However, in some studies, contacts with vendors and the literature is the only source of raw material prices. 

If utilities are supplied to the new project from some other source, the cost and amount must be determined. If purchased from a second party, the cost will be determined by contract and can be estimated by discussions with the vendor. If utilities are transferred from an affiliated source, the cost must include a profit to the supplying entity. Some estimators use a lower return on utility plants than on a new hydrocarbon processing unit, since the utility can be used for some alternate plant if the new one shuts down for any reason. However, the preferred analysis allows a high enough utility transfer price to provide the same return on the utilities as the new unit being studied. This can require a trial and error approach, especially if the utilities are a significant part of the selling price of the product. 

Overall yield This is not, however, a simple relationship. In a multistep process, the actual value for the increased yield of a given step depends on where it lies in the process chain [47]. The further down the manufacturing chain, the higher the (actual or transfer) price of the reactor feed and thus the higher the benefit of increased yield. 

Greece Prices based on cost, transfer price and lowest EU price... 

The objective function in an economic model in RTQ involves the costs of raw materials, values of products, and costs of production as functions of operating conditions, projected sales or interdepartmental transfer prices, and so on. 

The customer number is few mainly smaller than 500 customers compared to mass business with often more than 1 million customers or consumers. Customer types are external and company-internal customers buying on basis of transfer price agreements that are delivered with priority. Therefore, the customer relation is spot and contract-based with sales flexibility for a spot relation and fixed sales for contract relations. Customers can also have mixed spot and contract agreements depending on the product. 

In analogy to the demand side, procurement contracts are fixed by quantity and price with the objective to ensure a basis volume of raw materials. Spot procurement supports company s flexibility requirements and the company can decide the spot procurement quantity with certain flexibility around the offered quantity. Price levels for contracts and spot business differ and are volatile in each period. Typically, companies operate with few key strategic suppliers for a respective product or raw material. Therefore, price-quantity models like in sales planning are less applicable. More often is the case that specifically commodity-type raw materials are procured on many-to-many exchanges, which is out of the scope in our case as described in section 3.2.6. If products are supplied by internal business units, transfer prices are applied following the contract procurement principles. 

Global models are focused mainly on global network design, transfer price and tax optimization on a more strategic level. 

The determination of transfer prices between internal business units is out of the scope models to determine transfer prices in supply chains are described for example by Gjerdmm et al. (2001). 

Gjerdrum J, Shah N, Papageorgiou LG (2001) Transfer Prices for Multienterprise Supply Chain Optimization. Industrial Engineering Chemistry Research 40 1650-1660... 

Vidal CJ, Goetschalckx M (2001) A global supply chain model with transfer pricing and transportation cost allocation. European Journal of Operational Research 129 (1) 134-158... 

The supply agreement sets forth the transfer price at which the generic company is obligated to purchase all of its requirements. The generic apphcant is required to pay a 50% royalty of the net profits from all sales of the generic product. 

Scheme members will now be able to include capital employed in their APR on the basis of its inclusion in UK statutory accounts, by injection or by imputation in the transfer price. This will enable some companies that have been assessed as return on sales (ROS) companies under the 1993 scheme to be assessed as ROC companies under this agreement. 

Alternatively, for scheme members whose APR home sales exceed their average assessed home capital employed (excluding any capital imputation from the transfer price) by a factor of 3.5 or more, a target rate of profit will be set by dividing the ROC target rate by a factor of 3.5. The assessment of the returns of scheme members who elect for the ROS option will take account of the MOT on transfer price profit. 

These changes in the 1999 PPRS have been introduced to enable the DoH to control transfer pricing arrangements, which ABPl has long resisted. 

In the abovementioned example of BASF s paint shop, the business unit automotive paints could lose from the new concept, depending on the transfer price for the paint. 

In order to incorporate tax regimes into supply network design, the respective model has to maximize after-tax cash flows and be able to allocate transportation costs and determine optimal transfer prices. Determining optimal transfer prices is the most complex aspect because tax authorities have adopted strict rules regulating transfer pricing in order to... 

For further details on transfer pricing refer to Feinschreiber and Kent (2003), Choi et al. (2002, pp. 491-505) or Abdallah (1989). Feinschreiber (2004) provides details on the different transfer pricing methods and Feinschreiber (2000) discusses transfer pricing regulations of more than 40 countries. 

Similarly, the degree of freedom available to optimize transfer prices depends on factors outside the model such as accumulated deficits or the profitability of other business activities in a country. Furthermore, legal constructs such as principal trading companies (cf. Murphy 1998) are employed in practice to optimally allocate profits within a company. Finally, from a modeling perspective the simultaneous optimization of network design and transfer prices leads to a non-linear model (cf. Schmidt and Wilhelm 2000, p. 1510 Verter and Dincer 1995, p. 278) that is difficult to solve to optimality for realistic problem instances. Therefore, transfer prices are not optimized but instead determined outside the optimization model. Furthermore, transfer prices are assumed to be independent of the transfer destination because tax authorities in the country of origin usually do not accept differentiated transfer prices. In literature differentiated approaches can nevertheless be found as well (e.g., Kouvelis et al. 2004, p. 130). 

The import tariffs associated with the product flows between sites and markets are calculated in equation (3.5). The sum of transfer price and transportation costs is used to value products for tariff calculation. While in reality only the transportation costs to the border of the country are included in the product valuation for tariff purposes, this assumption was made to simplify the calculation.34... 

Equation (3.47) calculates the tariffs that have to be paid for import of raw materials. Duty drawbacks are considered by charging tariffs only for raw materials required for production of intermediate (second line) and finished goods (first line) that are not re-exported. The amount of intermediates not re-exported is adjusted for those intermediates that are transformed into goods subsequently re-exported at the same site. The formulation rests on the assumption that only one raw material source is used per site and that if a required intermediate is available locally the local source is used. Prices are converted from the currency used by the raw material supplier to the currency of the consuming site. Same as with the valuation of finished goods for tariff calculation the full transport costs are included in the tariff value of the raw materials and intermediates. Import tariffs for intermediates imported from another site are calculated in equation (3.48). The formulation differs from the one for raw materials because the source of the intermediates is not predetermined and the transfer price does not contain transportation costs. The net volumes of the intermediates which are not re-exported are calculated by subtracting the quantities contained in exported products from the total quantity imported. A non-negativity constraint sets the value to 0 if the respective intermediate is not imported from site s. ... 

Pre-tax profits from sales are calculated by subtracting all costs allocated to the selling country from net revenues. The costs of goods are calculated based on the transfer prices in equation (3.83). 

Abdallah WM (1989) International transfer pricing policies. Quorum Books, Westport and London... 

Ernst Young (2003) Transfer Pricing 2003 Global Survey. Ernst Young... 

Feinschreiber R (2004) Transfer pricing methods. John Wiley Sons, Hoboken, N.J. 

Feinschreiber R (2000) Transfer pricing international. John Wiley Sons, New York et al. 

Feinschreiber R, Kent M (2003) Transfer pricing for intercompany transactions. In Choi FDS (ed) International Finance and Accounting Handbook, 3rd edn. John Wiley Sons, New York et al. pp 29.1-29.40 Ferdows K (1997a) Made in the world the global spread of production. 

The scope of a model is typically chosen so that it is sufficient to envelop the feeds, product, and utilities to be able to have a meaningful economic objective function. Sometimes it is preferable to include upstream or downstream facilities even in a simple form to be able to use actual feed, product, and utility costs rather than transfer prices. 

Finally, tools need to be in place to track the margin contribution for all products and systematically eliminate those which do not meet the required threshold. Internal transfer price systems are typically detached from market dynamics and distort profitability analysis on the level of a single production plant. Such analysis only produces accurate conclusions when performed on the level of products or franchises. 

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