Essays on Transfer Pricing

In accounting, transfer pricing refers to the prices charged for goods and services sold between controlled (or related) legal entities within an enterprise. For example, if Company A manufactures a widget that it then sells to Company B, an affiliate of Company A, the price charged by Company A to Company B is the transfer price.Transfer pricing is important because it can have a significant impact on a company's financial statements. For example, if Company A charges too high of a price to Company B, it will result in a higher cost of goods sold on Company A's financial statements. Conversely, if Company A charges too low of a price to Company B, it will result in a lower cost of goods sold on Company A's financial statements. In either case, the result is an inaccurate portrayal of the company's financial performance. Additionally, transfer pricing can have tax implications. If Company A charges too high of a price to Company B, it may be subject to higher taxes. Conversely, if Company A charges too low of a price to Company B, it may be subject to lower taxes. As such, transfer pricing can have a significant impact on a company's tax liability.Finally, transfer pricing can impact a company's relationships with its affiliates. If Company A charges too high of a price to Company B, it may damage the relationship between the two companies. Conversely, if Company A charges too low of a price to Company B, Company B may come to view Company A as a dumping ground" for low-quality products. As such, transfer pricing can impact a company's relationships with its affiliates."

The three objectives of transfer pricing are to ensure that:1. Transactions between related parties are conducted at arms’ length prices;2. Profits are allocated between jurisdictions in a way that is consistent with the underlying economic activity; and3. Taxes are levied in the jurisdictions where the economic activity takes place.