Transfer pricing: US LLCs with EU connections

Important considerations for US LLCs with EU connections

Transfer pricing plays an important role for US LLCs and their relationships with EU companies, and such relationships are subject to certain transfer pricing rules.

Context and meaning

If you set up a US LLC as an EU citizen, transfer pricing can play an important role in your corporate structure. This is particularly relevant if your LLC has business relationships with companies in your EU home country that are related to you.

Transfer pricing is a key issue in international tax law and serves to ensure fair and reasonable prices for transactions between affiliated companies. They are an instrument to prevent companies from shifting profits to low-tax countries through manipulated internal prices and thus avoiding taxes.

Important information on transfer prices

1. Definition of Transfer prices are the prices for goods, services or intangible assets that are charged between affiliated companies in different countries.
2. Arm's length principleThe basic rule is that transfer prices must be structured as if the transactions took place between independent companies. This is known as the "arm's length principle".
3. Relevance of transfer pricing for LLC / Transfer pricing rulesIf your US LLC does business with your EU company (e.g. provides services or sells goods), the prices charged must be at arm's length.
4. Documentation obligationsMany countries require detailed documentation of transfer prices in order to prove their appropriateness.
5. Risks of non-complianceIf the tax authorities classify the transfer prices as inappropriate, they can adjust the prices, which can lead to additional payments and possibly penalties.
6. ComplexityThe determination of appropriate transfer prices can be complex and often requires a detailed analysis of comparable transactions between independent companies.
7. International aspectsBoth the US tax authorities (IRS) and the tax authorities in the EU countries have their own transfer pricing rules that must be observed.
8. Need for advice: Due to the complexity and the potential tax risks it is generally advisable to seek advice from tax experts when determining transfer prices.

Practical example of the transfer pricing rules

Let's assume you are an EU citizen and have founded a US LLC that develops software. At the same time, you own a consulting company in your EU home country.

Scenario:

• Your US LLC develops specialized software.
• Your EU company would like to use this software and sell it on to customers.

Transfer pricing aspects:

1. Determination of the priceYou must set a reasonable price for the software that your EU company will pay to the US LLC.
2. Market comparisonResearch what independent companies would pay for comparable software. This could be done by analyzing similar software licenses or consulting with industry experts.
3. DocumentationCarefully document how you arrived at this price. This could include a breakdown of development costs, market analysis and comparative prices.
4. Contractual designEnter into a formal license agreement between your US LLC and your EU company that specifies the rights of use and the agreed price.
5. Regular reviewReview the set price regularly to ensure that it remains in line with the market.
6. Tax treatmentTake into account how the license fees are treated for tax purposes in both countries. In the USA they are considered as income of the LLC, while in the EU they could be considered a business expense for your company.
7. ComplianceEnsure that you fulfill all documentation and reporting requirements in both the US and your EU home country.

By carefully considering and documenting these aspects, you can ensure that your transfer pricing complies with the requirements of the tax authorities in both countries and avoid potential conflicts.

Summarized

Transfer pricing plays an important role for US LLCs and their links to EU companies. Through correct transfer pricing, profits and losses can be fairly allocated between related companies to maximize tax benefits and to minimize tax losses. Double taxation to avoid. It is critical that transfer pricing is market-driven and documented to meet the requirements of both US and EU tax laws and avoid potential conflicts with the tax authorities.