Why Do Transnational Corporations Resort To Transfer Pricing?
Answers
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When one subsidiary of a corporation in one country sells goods, services or know-how to another subsidiary in another country, the price charged for these goods or services is called the transfer price. ... Transfer pricing is a strategy frequently used by TNCs to book huge profits through illegal means.
Transnational Corporations resort to transfer pricing in order to enjoy huge profits without any change in physical capital, because tax rates are different in different countries and so by making respective adjustments in the transfer price can reduce their tax burden.
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.