What is transfer pricing and why is it important?
Transfer prices are the prices at which services, tangible property and intangible property are traded across international borders between related parties. Transfer pricing is important because a change in the transfer price would affect the profits of the business subject to tax in a particular country. The tax authorities around the globe can and do, adjust a businesses inter-company pricing if they think that the transfer price would be different from a price agreed between two unrelated (arms length) parties. Such price adjustments can have an adverse tax effect on the business entity, especially when combined with additional interest and penalties.
