What is transfer pricing and its different methods?

Question

Accepted Answer

Transfer pricing is the practice of determining the value of goods or services exchanged between related entities in different tax jurisdictions.

Transfer pricing is used to determine the price of goods or services transferred between related entities in different countries.
It is important for companies to ensure that transfer pricing is done at arm's length, meaning the price is similar to what would be charged between unrelated parties.
There are several methods of transfer pricing, including the comparable uncontrolled price method, the cost plus method, and the resale price method.
The method chosen depends on the nature of the goods or services being transferred and the availability of comparable transactions.
For example, if a company is transferring a unique product, the comparable uncontrolled price method may not be applicable.
Transfer pricing can have significant tax implications for companies and can be subject to scrutiny by tax authorities.
It is important for companies to have a clear transfer pricing policy and to document their transfer pricing decisions.

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