In an era of globalization and continued growth of international
trade, inter-company pricing has become an everyday necessity for
many businesses. But why has transfer pricing become such a hot tax
issue?
Transfer prices (prices charged between related parties)
directly affect the allocation of groupwide taxable income (and
therefore taxes) across national tax jurisdictions. From a
multinational company's perspective, transfer pricing can help
an organization to identify opportunities for business
optimization. It can influence cash flow streams (e.g. less
corporate tax imposed by the tax authorities will increase the
resources at hand), investment decisions (e.g. a jurisdiction with
frequent changes of the transfer pricing legislation may bring
uncertainty, leading to a decision to exit a country) and key
performance indicators (e.g. less corporate tax increases the
profitability a company could offer to its shareholders). This
opportunity to shift income from one
