In today’s business environment, multinational corporations often have operations spread across the world in order to improve capital efficiency. Transfer pricing refers to the prices charged by related group entities when transferring raw materials, products, intellectual property, and services with each other. Tax authorities are concerned that due to their relationship, such transactions may be conducted under terms and prices that do not reflect arm’s length market transactions. For example, goods may be sold by a parent company in a high-tax country at artificially low, non-market prices to its subsidiary in a low-tax country. By doing so, income can be shifted to the low-tax country. Total tax paid by the group in the two countries would thus be reduced.
Transfer pricing requirements in a nutshell
To prevent income shifting among multinational group entities, many countries,…
