WHAT IS TRANSFER PRICING?
Transfer pricing, for tax purposes, is the pricing of
intercompany transactions that take place between affiliated
businesses. The transfer pricing process determines the amount of
income that each party earns from that transaction.
An exercise largely carried out for Tax Minimization across the
group. As long as the group is controlling the funds, it does not
matter where they are parked.
Taxpayers and the taxing authorities focus exclusively on
related-party transactions, which are called controlled
transactions, and have no direct impact on independent party
transactions, which are termed as uncontrolled transactions.
DEFINITION
"A transfer price is a price, adopted for bookkeeping
purposes, which is used to value transactions between affiliated
enterprises integrated under the same management at artificially
high or low levels in order to effect an unspecified income payment
or capital transfer between those enterprises."
–OECD
