Question

What is the overall concept of transfer pricing and the benefits transfer pricing provides to a multinational company.

Answer 1

Transfer price is the price one sub unit charges for a product or service supplied to another sub unit of the same organization.

Benefits to MNC :

1) Lowering duty costs by shipping goods into high tariff countries at minimal transfer prices so that duty base & duty are low.

2) Reducing income taxes in high-tax countries by overpricing goods transferred to units in such countries, profits are eliminated and shifted to low tax countries.

3) Facilitating dividend repatriation when dividend repatriation is curtailed by government policy by inflation of prices of goods transferred.