Transfer Pricing, Black Money, Tax-Evasion & Tax-Avoidance - Testbook

Exploring Transfer Pricing, Black Money, Tax Evasion and Tax Avoidance

Transfer pricing refers to the pricing rules and methods used for transactions between different business divisions under the same ownership. It is essentially the pricing rules for different subsidiary companies or branches within a single corporation. For example, if a subsidiary company sells goods or services to its parent company, the transfer price is the cost of the goods or services that the parent pays to the subsidiary.

Black money refers to money earned in the black market, implying funds earned without paying income tax or other taxes. The total amount of black money deposited by Indians in foreign banks is unknown. Some reports suggest that this figure could be as high as USD 50 trillion. However, these claims have been refuted by the Swiss government and the Swiss Bankers Association, who maintain that the total amount of money deposited by Indians in Swiss banks is UDS 2 billion.

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Tax evasion is the deliberate, unlawful evasion of taxes by individuals, corporations, and trusts. Taxpayers misrepresent their financial affairs to the tax authorities in this case, employing fraudulent practices such as underreporting income or profits and overstating deductions.

Tax avoidance, on the other hand, is the legal use of the tax regime to reduce tax liability. This includes investing funds in ways that reduce the net income and, therefore, the amount of tax payable. Tax avoidance is entirely legal.

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