Understanding Transfer Pricing and its Impact on Business Tax Planning
Understanding Transfer Pricing and its Impact on Business Tax Planning Transfer pricing refers to the rules and methods used to price transactions between related business entities operating in different tax jurisdictions. These transactions can involve the exchange of goods, services, intellectual property, or even financing arrangements. While transfer pricing is a standard and necessary part of global business operations, it has significant implications for business tax planning—especially when it comes to compliance and reducing overall tax liability. Multinational corporations often set up subsidiaries in multiple countries for operational, strategic, or tax-related reasons. When one entity sells a product or provides a service to another within the same corporate group, the pricing of that transaction must be set according to the “arm’s length principle.” This principle ensures that the transaction is priced as if it were between unrelated parties in a competitive market, prevent...