When one part of a multinational organization in one country sells goods or services to another part in another country, the price charged for these goods or services is called a 'transfer price'. Not long ago, transfer pricing was a subject for tax administrators and one or two other specialists. But recently, politicians, economists and businesspeople have been waking up to the importance of who pays tax on what in international business transactions between different arms of the same corporation. Globalization is one reason for this interest, the rise of the multinational corporation is another. Once you take on board the fact that more than 60% of world trade takes place within multinational enterprises, the importance of transfer pricing becomes clear.
Transfer pricing is a great way to move goods from one company division or department to another without generating a lot of postings on the Accounts Receivable and Accounts Payable books. The value of the goods is simply moved from one division to the other, a process that greatly simplifies the process.
Transfer pricing is a great way to move goods from one company division or department to another without generating a lot of postings on the Accounts Receivable and Accounts Payable books. The value of the goods is simply moved from one division to the other, a process that greatly simplifies the process.