WHAT IS TRANS­FER PRIC­ING?

CityPress - - Business -

Trans­fer pric­ing is a nor­mal ev­ery­day part of busi­ness when­ever two com­pa­nies owned by the same group, or that are oth­er­wise linked, have to buy or sell some­thing be­tween them­selves.

When you sell some­thing to your­self, the price is pretty unim­por­tant and you might as well “sell” it for free. But when you sell some­thing to your­self across a na­tional bor­der, the price you choose de­ter­mines whether your profit falls on one side of the bor­der or the other. When an econ­omy is dom­i­nated by multi­na­tional firms, trans­fer pric­ing can make or break that coun­try’s gov­ern­ment and econ­omy.

In prin­ci­ple, the bad kind of trans­fer pric­ing is called trans­fer “mis­pric­ing” or “abu­sive” trans­fer pric­ing. That’s when you sell things to your­self at more or less than the fair price to shift profit from one unit to an­other.

You can use a va­ri­ety of in­stru­ments from sell­ing ac­tual phys­i­cal things to pro­vid­ing ser­vices, charg­ing for the use of IP, or mak­ing in­ter­com­pany loans with sus­pi­ciously high in­ter­est rates.

The gen­eral rule is that the price you charge your­self has to be the same as that you would charge a nor­mal cus­tomer “at arm’s length”.

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