Transfer pricing

A transfer price is the price at which goods (or services) are sold between divisions of a company, or between companies in the same group (the have the same parent company).

Setting transfer prices raises a number of issues:

  • Incorrect prices can distort reported performance, by making some divisions more profitable at the expense of others.
  • There are opportunities to avoid taxes by using artificial transfer prices to shift profits from high tax country to a low tax country.
  • Artificial pricing can similarly be used for controlling shareholders to profit at the expense of minorities.
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