What is transfer pricing and what are its different methods?

Question

Accepted Answer

Transfer pricing is the practice of setting prices for goods and services sold between related entities within a company.

It involves determining the value of goods and services transferred between different divisions or subsidiaries of a company
Types of transfer pricing include cost-based, market-based, and profit-based methods
Cost-based methods involve determining the cost of producing a good or service and adding a markup
Market-based methods involve using prices from comparable transactions in the open market
Profit-based methods involve determining a fair profit margin for each division or subsidiary involved in the transaction
Transfer pricing is important for multinational companies to ensure compliance with tax laws and avoid penalties

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