Transfer pricing refers to the price charged for goods and services exchanged between related parties, such as a parent company and its subsidiary or a company and its contract manufacturer.
The electronics manufacturing industry is one of the most dynamic and complex industries, characterized by high competition, rapid technological changes, and profit margins that can quickly erode. In this context, transfer pricing has become a crucial issue for electronics manufacturers with extended contract manufacturing supply chains.
Transfer pricing can create significant tax and compliance risks, especially for electronics manufacturers with global operations and complex supply chains.
One of the primary challenges of transfer pricing for electronics manufacturers with extended contract manufacturing supply chains is the complexity of their operations.
Contract manufacturing is a common practice in the electronics industry, where OEMs (original equipment manufacturers) outsource the manufacturing of their products to third-party suppliers.
Meanwhile, contract manufacturing can create transfer pricing risks, as the pricing of the goods and services exchanged between the OEM and the contract manufacturer must be set at arm’s length to avoid tax and compliance issues.
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The arm’s length principle requires that the pricing of related-party transactions should be equivalent to the pricing of comparable transactions between unrelated parties.
However, in the case of electronics manufacturers with extended contract manufacturing supply chains, it can be challenging to identify comparable transactions, as the products and services exchanged are often unique or customized.
Moreover, the transfer pricing rules and regulations vary across different jurisdictions, adding complexity to the process.
Another challenge of transfer pricing for electronics manufacturers with extended contract manufacturing supply chains is the lack of transparency in the supply chain.
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