Transfer Pricing Adjustment

Transfer Pricing Adjustment

A Transfer Pricing Adjustment refers to a modification made to the transfer price charged between affiliated entities within a multinational corporation for goods, services, or intangibles. This adjustment is often necessary to ensure compliance with tax regulations and to align the transfer prices with the arm’s length principle, which states that the prices charged in transactions between related parties should be consistent with the prices charged in similar transactions between unrelated parties.

For example, if a subsidiary in one country sells products to a subsidiary in another country at a price that is significantly lower than the market price, tax authorities may require a Transfer Pricing Adjustment to increase the reported income of the selling subsidiary and ensure that both entities are taxed appropriately in their respective jurisdictions.