It is a common tax planning method for multinational companies to manipulate product pricing to achieve tax avoidance, mainly through the following methods: ### High-in, low-out or low-in, high-out - **High-in, low-out** - **Principle**: When the parent company of a multinational company sells products, provides services or transfers intangible assets to a subsidiary located in a low-tax area, it raises the price. In this way, the profit is transferred from the low-tax area to the high-tax area, increasing the cost of the company in the high-tax area and reducing the profit of the company in the low-tax area, thereby reducing the tax burden of the group as a whole. - **Example**: An American multinational company A has a subsidiary B in Ireland. Company A sells a batch of electronic products to Company B. The normal market price is US$100, but Company A prices it at US$150. The difference of US$50 increases the profit of Company A, and accordingly, due to the increase in costs, the profit of Company B decreases. Assuming that the corporate income tax rate in the United States is 25% and the corporate income tax rate in Ireland is 12.5%, through this high-in, low-out pricing method, multinational companies transfer profits from Ireland to the United States and reduce the tax amount by taking advantage of the difference in tax rates between the two countries. - **Low-in, high-out** - **Principle**: When a subsidiary of a multinational company sells products or provides services to its parent company or other affiliated companies, it lowers the price. This allows profits to be transferred from high-tax areas to low-tax areas within the group, reducing the overall tax burden. - **Example**: The same American multinational company A and its Irish subsidiary B mentioned above, B company sells parts to A company, the normal price is $80, and B company prices it at $50. The $30 price difference leads to an increase in B company's profits, and a reduction in A company's costs and profits. Through this low-in, high-out pricing strategy, multinational companies keep profits in the low-tax Irish subsidiary and reduce the amount of tax paid in the United States. ### Use transfer pricing to adjust profit distribution - **Principle**: Multinational companies adjust the transaction prices of products, services, intangible assets, etc. between different companies within the group, change the profit level of each member company, and concentrate profits in companies in low-tax areas, thereby reducing the overall tax burden of the group. - **Example**: A pharmaceutical multinational company, its R&D center is located in a high-tax country, and its production base is in a low-tax country. Through transfer pricing, enterprises transfer R&D results to production bases at a lower price, which greatly increases the profits of production bases and reduces the profits of R&D centers. Since the tax rate of the country where the production base is located is low, the tax amount of the entire group is reduced. ### Establishment of intermediate holding companies - **Principle**: Multinational enterprises establish intermediate holding companies in some specific low-tax regions, transfer profits to intermediate holding companies first, and then use transaction pricing between intermediate holding companies and other subsidiaries or affiliated companies to further adjust profit distribution and achieve tax avoidance. - **Example**: A European multinational enterprise conducts business in China and establishes subsidiary C in China. In order to avoid taxes, the enterprise establishes intermediate holding company D in Singapore. Chinese subsidiary C sells products to D company in Singapore at a lower price, and D company sells them to other affiliated companies at a higher price. In this way, profits are transferred from Chinese subsidiaries to intermediate holding companies in Singapore. Since Singapore's corporate income tax rate is relatively low, the tax burden of the entire group is reduced. ### Pricing of intangible assets in related transactions - **Principle**: Intangible assets have the characteristic of being difficult to accurately assess their value. Multinational enterprises take advantage of this and transfer the income of intangible assets to enterprises in low-tax regions through unreasonable transfer pricing. - **Example**: A technology multinational company develops its core technology in a high-tax country, but when it transfers the intellectual property rights of the technology to a subsidiary in a low-tax area, it charges extremely low royalties or gives the subsidiary a very high discount, which significantly reduces the profits of the company in the high-tax country. The profit of the subsidiary in the low-tax area increases due to the use of low-cost intangible assets, thereby achieving tax avoidance.