Structuring global expansion is a complex decision requiring one to weigh multitudes of treaties, cost advantages and cost of monitoring. Expansion enables the company to benefit from economies of scale providing additional profit enhancement. Companies often face the question of whether to structure the new venture as a separate legal entity or a subsidiary. Factors such as taxation, transfer pricing, legalities and profit sharing form the crux of these expansion strategies. Companies need to also ensure treaties between two countries and the nature of business that they could likely engage in. The profit could be pooled in the country where the tax laws are less stringent and the law for transfer of funds flexible. The increasing volume and variety of inter-company transactions have given rise to companies concentrating on transfer pricing as a leading risk management issue. The right strategies if adopted can save a company billions of dollars while a wrong decision could initiate the increase in costs and penalties.
– Pratibha Sharma