Transfer pricing
Transfer pricing refers to setting prices for goods and services exchanged between
controlled (or related) legal entities within an enterprise. For instance, if a subsidiary company
sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary
constitutes the transfer price. Legal entities under the control of a single.
corporation include branches and companies wholly or majority owned by the parent corporation. Some jurisdictions consider entities to be under common control if they share family
members on their boards of directors.
Transfer pricing serves as a method for allocating profits (or losses) before tax to countries
where a multinational corporation conducts business. International tax laws are regulated
by the Organization for Economic Cooperation and Development (OECD), with auditing
firms operating within each international location.