Why do the transnational corporation resort to transfer pricing?
Answers
because it was the phenomenon by which profits of a multinational corporation is shifted from a jurisdiction with higher tax rates to a jurisdiction with lower tax rates through associated enterprises by changing the policy of pricing at which the transactions amongst the related entities take place.
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Transnational Corporations resort to transfer pricing for getting huge profits without making any changes in physical capital, because tax rates are different in different countries and so by making respective adjustments in the transfer price,they can reduce their burden of tax.
Transfer pricing is referred to as the price at which transactions take place between different subsidiaries or divisions of a company located in different countries.