What is Transfer Pricing? What is Arm's length price?

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Transfer pricing is the practice of determining the value of goods or services exchanged between related entities. Arm's length price is the price at which unrelated parties would transact.

Transfer pricing is used by multinational companies to allocate profits and taxes between different countries.
It involves setting prices for goods and services that are transferred between different subsidiaries of the same company.
The arm's length principle is used to ensure that the prices set are fair and reasonable, as if the transactions were between unrelated parties.
For example, if a company in the US sells goods to its subsidiary in India, the transfer price should be similar to what an unrelated US company would charge for the same goods sold to an Indian company.
Arm's length price is determined by comparing the transaction between related parties to similar transactions between unrelated parties.
If the transaction between related parties is significantly different from what would be expected between unrelated parties, adjustments may be made to the transfer price.
Transfer pricing is a complex area of taxation and is subject to scrutiny by tax authorities around the world.

What is Transfer Pricing? What is Arm's length price?

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