Transfer Pricing

Summary of Transfer Pricing

The pricing level at which goods are sold between related entities, subsidiary to parent. Transfer pricing has been an area of considerable interest to customs authorities, inasmuch as such sales are often suspected of being manipulated by the parties deliberately to undervalue the goods for duty purposes; conversely, the country of exportation may suspect the transaction as a vehicle to transfer funds out of the country. Under the Customs Valuation Agreement (read this and related legal terms for further details), sales between related parties are dutiable under the transaction value method, unless it can be determined that the relationship between the buyer and seller has affected the price.

(Main Author: William J. Miller)

Other Popular Tax Definitions in the World Legal Encyclopedia

• Adjusted Gross Income (sometimes, including Transfer Pricing)
• Ad Valorem Tax (sometimes, including Transfer Pricing)
• Alternative Minimum Tax (sometimes, including Transfer Pricing)
• Big Four (audit firms) (sometimes, including Transfer Pricing)
• Black Market (sometimes, including Transfer Pricing)
• Capital Gain (sometimes, including Transfer Pricing)
• Capital Gains Tax (sometimes, including Transfer Pricing)
• Carbon Tax (sometimes, including Transfer Pricing)
• Church Tax (sometimes, including Transfer Pricing)
• Corporate Tax (sometimes, including Transfer Pricing)
• Corporate Tax (sometimes, including Transfer Pricing)
• Customs (sometimes, including Transfer Pricing)
• Deferred Tax (sometimes, including Transfer Pricing)
• Depreciation (sometimes, including Transfer Pricing)
• Dividend (sometimes, including Transfer Pricing)
• Employer Identification Number (sometimes, including Transfer Pricing)
• Estate Tax (sometimes, including Transfer Pricing)
• Excise (sometimes, including Transfer Pricing)
• Fiscal Policy (sometimes, including Transfer Pricing)
• Fiscal Year (sometimes, including Transfer Pricing)
• Flexible Spending Account (sometimes, including Transfer Pricing)
• Government Spending (sometimes, including Transfer Pricing)
• Gross Income (sometimes, including Transfer Pricing)
• Health Savings Account (sometimes, including Transfer Pricing)
• History of Taxation (sometimes, including Transfer Pricing)
• Income Tax (sometimes, including Transfer Pricing)
• Income tax (sometimes, including Transfer Pricing)
• Income Tax (sometimes, including Transfer Pricing)
• Income Tax Law (sometimes, including Transfer Pricing)
• Indirect Tax (sometimes, including Transfer Pricing)
• Inheritance Tax (sometimes, including Transfer Pricing)
• Offshore Bank (sometimes, including Transfer Pricing)
• Payroll Tax (sometimes, including Transfer Pricing)
• Progressive Tax (sometimes, including Transfer Pricing)
• Property Tax (sometimes, including Transfer Pricing)
• Public Finance (sometimes, including Transfer Pricing)
• Rate Schedule (Federal Income Tax) (sometimes, including Transfer Pricing)
• Real Estate Investment Trust (sometimes, including Transfer Pricing)
• Regressive Tax (sometimes, including Transfer Pricing)
• Sales tax (sometimes, including Transfer Pricing)
• Sales Tax (sometimes, including Transfer Pricing)
• Subsidy (sometimes, including Transfer Pricing)
• Tariff (sometimes, including Transfer Pricing)
• Tax (sometimes, including Transfer Pricing)
• Taxation (sometimes, including Transfer Pricing)
• Taxation and Customs Union (sometimes, including Transfer Pricing)
• Taxation Definition (sometimes, including Transfer Pricing)
• Taxation (in different countries) (sometimes, including Transfer Pricing)
• Taxation in the European Union (sometimes, including Transfer Pricing)
• Taxation Office (sometimes, including Transfer Pricing)
• Taxation Principles (sometimes, including Transfer Pricing)
• Taxation without representation (sometimes, including Transfer Pricing)
• Tax Bracket (sometimes, including Transfer Pricing)
• Tax Code (sometimes, including Transfer Pricing)
• Tax Code (sometimes, including Transfer Pricing)
• Tax Deducted at Source (som
  etimes, including Transfer Pricing)
• Tax Evasion (sometimes, including Transfer Pricing)
• Tax exemption (sometimes, including Transfer Pricing)
• Tax Forms (sometimes, including Transfer Pricing)
• Tax Haven (sometimes, including Transfer Pricing)
• Tax Law (sometimes, including Transfer Pricing)
• Tax Law Careers (sometimes, including Transfer Pricing)
• Tax Law Jobs (sometimes, including Transfer Pricing)
• Tax Rate (sometimes, including Transfer Pricing)
• Transfer Pricing (sometimes, including Transfer Pricing)
• Types of Taxation (sometimes, including Transfer Pricing)
• Types of Taxes (sometimes, including Transfer Pricing)
• Value Added Tax (sometimes, including Transfer Pricing)
• VAT Identification Number (sometimes, including Transfer Pricing)
• Withholding Tax (sometimes, including Transfer Pricing)

Transfer Pricing in International Trade

Meaning of Transfer Pricing, according to the Dictionary of International Trade (Global Negotiator): Transfer prices are those charged for intracompany movement of goods and services. Firms need to make transfer-pricing decisions when goods are transferred from the headquarters to the subsidiaries in another countries. This transfer prices are important because goods transferred from country to country must have a value for cross-border taxation purposes. There are three basic approaches to transfer pricing:

Transfer at cost. The transfer price is set at the level of the production cost and the international division is credited with the entire profit that the firm makes. This means that the production center is evaluated on efficiency parameters rather than profitability.

Transfer at arm’s length. Here the international division is charged the same as any buyer outside the firm. Problems occur if the overseas division is allowed to buy elsewhere when the price is uncompetitive or the product quality is inferior, and further problems arise if there are no external buyers, making it difficult to establish a relevant price. Nevertheless, this approach has now been accepted worldwide as the preferred (not required) standard by which transfer prices should be set.

Transfer at cost plus. This is the usual compromise, where profits are split between the headquarters and the subsidiaries. The formula used for assessing the transfer price can vary, but usually it is this method that has the greatest chance of minimizing time spent on transfer-price disagreements, optimizing corporate profits and motivating the headquarters and subsidiaries.

The best solution also depends on the tax rates in the countries of the headquarters and subsidiaries. See price differentiation; price standardization.

Hierarchical Display of Transfer pricing

Finance > Free movement of capital > Free movement of capital > Capital movement > Capital transfer
Finance > Free movement of capital > Free movement of capital > Type of business > Multinational enterprise
Finance > Free movement of capital > Free movement of capital > Tax system > Tax avoidance

Transfer pricing

Concept of Transfer pricing

See the dictionary definition of Transfer pricing.

Characteristics of Transfer pricing

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Resources

Translation of Transfer pricing

• Spanish: Precio de transferencia
• French: Prix de transfert
• German: Transferpreis
• Italian: Prezzi di trasferimento
• Portuguese: Custo de transferência
• Polish: Cena transferowa

Thesaurus of Transfer pricing

Finance > Free movement of capital > Free movement of capital > Capital movement > Capital transfer > Transfer pricing
Finance > Free movement of capital > Free movement of capital > Type of business > Multinational enterprise > Transfer pricing
Finance > Free movement of capital > Free movement of capital > Tax system > Tax avoidance > Transfer pricing

See also

• Multinational enterprise
• Tax avoidance