Transfer price definition
/What is a Transfer Price?
A transfer price is the price at which the subsidiaries of a business sell to each other. Transfer prices are needed when the financial results of individual subsidiaries are being compiled. This concept can be used to avoid paying income taxes in high-tax regions, and so is a significant focus of government auditing activities. In order to reduce taxes, a company sets high transfer prices for goods and services being sold into a subsidiary that is subject to higher tax rates, so that the subsidiary has lower profits on which taxes can be levied.
Types of Transfer Pricing Methods
There are a number of transfer pricing methods, such as using the market price, or a negotiated price, or cost plus margin.