Transfer Pricing Guidelines

Transfer Pricing Guidelines

Transfer Pricing Guidelines refer to the set of regulations and principles established to determine the prices charged between related entities for goods, services, or intellectual property within multinational corporations.

These guidelines aim to ensure that transactions between related companies are conducted at arm’s length, meaning that the prices should be consistent with those charged in similar transactions between unrelated parties. The purpose is to prevent profit shifting and tax avoidance by accurately allocating income and expenses across different jurisdictions.

For example, if a parent company in one country sells products to its subsidiary in another country, the Transfer Pricing Guidelines would dictate how to set the price for that transaction to reflect market conditions, thus ensuring that the taxable income is appropriately recognized in each jurisdiction.