what is transfer pricing ?why do transnational corporations resort to transfer pricing?
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Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. For example, if a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is the transfer price.
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Answer: Transfer pricing is the price marked by the companies at which they transact with each other . The other term used for transfer pricing is transfer cost . When several divisions are required to transact with each other , transfer price is used to determine transfer cost . Transfer pricing is generally used when different companies sell their goods to divisions in international jurisdictions .
Explanation: transnational corporations resort to transfer pricing as this pricing is considered by most of the companies for selling of their goods to divisions in international divisions . This pricing method is considered by multinational companies and is an accounting and taxation linked practice to save taxes in the operating countries .