Due to the production, marketing and sale of Coca-Cola (KO) concentrates in various overseas markets, the company continues to defend its $3.3 billion transfer price for a licensing agreement. Between 2007 and 2009, the company transferred IP value to subsidiaries in Africa, Europe and South America. The IRS and Coca Cola continue to fight through litigation and the case has yet to be resolved. Under the rules of several countries, taxpayers must demonstrate that the prices charged are within the prices allowed by the transfer pricing rules. If such documentation is not established in time, it may be imposed as above. To avoid these penalties, documentation may be required before filing a tax return. [78] A tax payer`s documents are not required to refer to the tax authorities in a jurisdiction that allows for price adjustment. Some systems allow the tax authorities to ignore information that is not provided on time by taxpayers, including advance documents. India requires not only that the documents be available before a return is filed, but also that the documents be certified by the accountant who is preparing a business return. Multinational companies (MNCs) are authorized by law to use the transfer pricing method for the allocation of profits to their subsidiaries and subsidiaries that are part of the parent organisation. However, companies can sometimes apply (or abuse) this practice by changing their taxable income and thereby reducing their total taxes.

The transfer pricing mechanism is a way of transferring taxable businesses to low-cost tax areas. The discussion in this section explains an economic theory behind optimal transfer pricing with optimally defined transfer pricing that maximizes the overall profits of companies in a non-realistic world without taxes, without capital risk, without development risk, without external effects or other frictions that exist in the real world. In practice, many factors influence transfer pricing used by multinationals, including performance measurement, accounting system performance, import quotas, tariffs, VAT, profit tax and, in many cases, a simple lack of attention to pricing. To better understand the impact of transfer pricing on a company`s tax bill, we look at the following scenario.