Methods of Transfer Pricing

What is Transfer Pricing?

Transfer Pricing can be defined as the determination of the cost of transactions of goods and services between two related companies owned and/or operated by the same parent company, often across international borders. Companies often use transfer pricing to avail themselves of tax benefits. Multinational companies avail the benefits of different tax regimes by practising transfer pricing. The main objective of transfer pricing is deciding the transaction costs of these intra-group transactions....

Methods of Transfer Pricing

I. Traditional Transaction Methods...

I. Traditional Transaction Methods

1. Comparable Uncontrolled Price Method (CUP Method)...

II. Transactional Profit Methods

1. The Comparable Profit Method (CPM)...

Conclusion

Transfer pricing is a major topic in international tax law. It refers to the price of goods or services sold between two associated companies. The two main categories of transfer pricing methods are traditional transaction methods and transactional profit methods. Traditional transaction costing focuses on the individual transaction. Transactional profit costing focuses on the profitability of the business as a whole. The method to use depends, of course, on the circumstances of the sale and the company should seek professional advice to ensure it is doing things right from a tax perspective....