Transfer pricing is an accounting practice that represents the price that one division in a company charges another division for goods and services provided.
Transfer pricing allows for the establishment of prices for the goods and services exchanged between subsidiaries, affiliates, or commonly controlled companies that are part of the same larger enterprise. Transfer pricing can lead to tax savings for corporations, though tax authorities may contest their claims.
Multinational corporations (MNCs) are legally allowed to use the transfer pricing method to allocate earnings among their subsidiary and affiliate companies that are part of the parent organization. However, companies sometimes can also use (or misuse) this practice by altering their taxable income, thus reducing their overall taxes. The transfer pricing mechanism is a way that companies can shift tax liabilities to low-cost tax jurisdictions.
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Transfer pricing acts to distribute earnings throughout an organization but is primarily used to skirt tax laws and reduce tax burdens by multinational companies.
The Comparable Uncontrolled Price Method is one of the most commonly used transfer pricing methods.
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© 2025 Developed by Digitally Vibed