It seems that transfer pricing is the topic of the moment: in
conferences, articles, and boardrooms you hear about it... but what
does it really mean?
When third parties enter into commercial transactions with each
other, the terms and conditions of their arrangement are governed
by market forces and the price they negotiate is by definition a
market price. However, this is not the case when two entities of
the same group enter into similar commercial transactions. The
negotiation is influenced by market forces, but also by the
position of the entities within the group, by group synergies, and
other biases that, all together, can lead to a price that is not at
arm's length.
The purpose of transfer pricing rules is thus to ensure that the
price of a transaction between two related parties corresponds to
the price charged between independent parties involved in a similar
transaction.
