Question
Explain the technique of Transfer Pricing with the help of a suitable illustration.
Answer :
Word Count : 560
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Transfer pricing is a technique used in international business finance to determine the price at which goods, services, or intangible assets are transferred between related entities of a multinational company operating in different countries. It plays a crucial role in allocating income and expenses among subsidiaries to ensure proper profit distribution and tax compliance. Since tax rates vary across countries, transfer pricing decisions can significantly influence a company’s overall tax liability. Therefore, multinational enterprises (MNEs) strategically use transfer pricing to optimize their global tax structure while adhering to international regulations set by tax authorities. The main objective of transfer pricing is to ensure that intercompany transactions are conducted at an arm’s length price, meaning the price that would have been charged if the transaction had occurred between unrelated parties under similar market conditions. This
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