Transfer Pricing Strategy

Transfer Pricing Strategy: Transfer pricing refers to the pricing of goods or services among subsidiaries within a corporation. This strategy is adopted by a MNC (Multinational Corporation). The subsidiaries of a MNC trade among themselves or with the parent firm. It seems that any price charged by a subsidiary to another subsidiary or to the parent firm is acceptable as the sales are undertaken within the corporation.

If the selling price is relatively low, the profit is made by the buying subsidiary. If the price is relatively high, the profit is made by the selling firm. In any case, the profit is made by the parent firm. However, one subsidiary may gain at the cost of another. This may lead to disputes which must be resolved.

Transfer pricing decisions are affected by several factors such as market conditions, competition in income taxes, import restrictions, custom duties, price controls and exchange controls.