Pricing and Profitability Management: A Practical Guide for Business Leaders

The Convergence of Tax and Pricing Strategy

Jurisdictions and Taxation Regimes

When formulating pricing policies, companies must sort through the many jurisdictions that impose taxes through a wide variety of regimes. This complex task is complicated further by frequent rule and rate changes. Despite these challenges, business leaders must take the necessary steps to understand their company's position. To start with, a company's taxable income base must be evaluated in the relevant jurisdictions. Here are some key issues that should be considered when assessing each applicable regime:

• Is it territorial (i.e., does it apply to transactions falling within certain jurisdictional borders) or is it residence-based (i.e., are taxes levied upon the income of a resident corporation regardless of the jurisdiction where the income was earned)?
• What is the nature of the regime (e.g., income, sales, use, value-added, excise, or property taxes, along with licensing requirements and duties)?

Tax laws can influence how a company conducts its business in a variety of ways, including how information is captured on an invoice, where title (for goods) is transferred to customers, and where contracts with clients are negotiated and executed. Companies need to examine these issues before a transaction has been negotiated and executed as it is far more difficult to structure a deal tax-efficiently, or to negotiate with a tax-levying body for reduced rates or exemptions after the fact. Fewer options ...