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Categories: General Tax Terms

Transfer Pricing refers to the rules and methods for pricing transactions between enterprises under common ownership or control. It is primarily used in the context of international trade to ensure that transactions between related entities are conducted at arm’s length, meaning the prices should be similar to those charged between unrelated parties in similar circumstances.

Transfer pricing is crucial for multinational corporations as it affects the allocation of income and expenses across different jurisdictions, which can influence tax liabilities. For example, if a parent company sells goods to its subsidiary at a price significantly different from the market rate, it can lead to tax avoidance or evasion issues. Therefore, tax authorities require companies to maintain proper documentation and justification for their transfer pricing policies.

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