Question

(b) what is transfer pricing? Why do the transnational corporations resort to transfer pricing?Spykan

Answer 1

MASTER OF COMMERCE – M.Com First Year (IBO) Solved Assignments for July 2018 and January 2019 Admission Cycles

IBO Tutor Marked Solved Assignment

Course Code : IBO – 06

Course Title : International Business Finance

Assignment Code : IBO-04/TMA/2018-19

Coverage : All Blocks

IBO – 06 International Business Finance Solved Assignment for 2018-19

Answer 2

Transfer pricing can be described as the price at which all transactions take place between different subsidiaries or units of a company situated in different countries.

Transnational Corporations resort to transfer pricing for reaping huge profits without requiring any changes to be made in the physical capital.

It is because tax rates are different in different countries and therefore, by making respective adjustments in the transfer price,one can effectively reduce their tax burden.