Transfer Pricing

Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. In principle a transfer price should match either what the seller would charge an independent, arm's length customer, or what the buyer would pay an independent, arm's length supplier. While unrealistic transfer prices do not affect the overall enterprise directly, they become a concern when they are misused to lower profits in a division of an enterprise that is located in a country that levies high taxes and raise profits in a country that is a tax haven which levies no or low taxes.