transfer pricing (1 Viewer)

[raekwon]

can someone please explain the concept of transfer pricing in relation to globalisation?

 

[connie]

transfer pricing, a special type of exporting called intracorporate sales, refers to the prices one subsidiary of a company charges a second subsidiary for goods and services. eg. An item costs $1000 to produce in Australia. It is sold to a Malaysian subsidiary for $1000. Hence $0 of tax is paid because no profit is made. The Malaysian subsidiary resells the item for $2000 to a US subsidiary. $150 tax is paid. The US subsidiary sells the item at cost for $2000. No profit is earned therefor no tax is paid. In actual fact the company makes $1850 profit, but the profit is hidden.

The manipulation of the transfer price also reduces customs duties and important tariffs.

Hope that helped, i just got it straight out of my text book

 

[chris42]

Yeah, transfer pricing is basically where a business subsidiary sells to another subsidiary, in another country, and in this way it minimise the tax it has to pay on it goods.

 

[connie]

no actually, it refers specifically to the PRICE one subsidiary charges another, your definition would receive a whole of 0!