Transfer Pricing; Black Money; Tax-Evasion & Tax-Avoidance
Transfer pricing is the pricing rules and methods followed for transactions by the different business divisions under a common ownership. It basically refers to the pricing rules set for the different subsidiary companies or different branches or business divisions within a single corporation. For instance, when a subsidiary company sells some goods or services to its parent company, transfer price is the cost of the goods or services the parent pays to the subsidiary company.
Black money is the money that is earned in the black market. This refers to the funds that are earned for which income tax and/or other taxes have not been paid. The total amount of black money stashed away in foreign banks by Indians is not known. Some reports claim that this amount is a staggering USD 50 trillion. However, the Swiss government as well as the Swiss Bankers Association have rubbished these claims and hold that the total amount of money deposited in Swiss banks by Indians is UDS 2 billion.
Tax evasion is the wilful and illegal evasion of taxes by individuals, trusts and corporations. In this case, taxpayers misrepresent their financial state of affairs deliberately to the tax authorities. This includes fraudulent practices such as dishonest tax reporting, declaration of less income or profits than the amount actually earned, and also overstating their deductions.
Tax avoidance is the legal use of the country’s tax regime in order to reduce the tax liability by legal means. This includes investing funds in any investment/insurance so that the net amount earned is less and the taxpayer has to pay only a reduced amount as tax. Tax avoidance is completely legal.