Transfer Prices
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Transfer Pricing
Transfer pricing is the price agreed upon by two associated companies for the transfer of goods, services, or rights between them. This price is relevant in the tax domain when the entities setting the price have ownership or management links between them ("related entities"), which could mean the price is not set under the same conditions as would be used by entities without these links ("third parties" or "independent entities"). In such cases, if the price setting differs from what would be formed in an open, competitive, and unrestricted market, it implies that the price could allow the distribution of profits among related companies in a way that might be artificially favorable to one of the entities. That is, one company could sell to another at a higher or lower price than what would be formed in a fully competitive market, depending on the location where a corporate group strategically intends to accumulate profits, which could affect the revenue interests of a particular tax administration.