Transfer pricing refers to the pricing of goods, services, and intellectual property transferred between related entities within a multinational corporation. It is a significant aspect of international tax laws because it can affect the allocation of income and expenses between different countries. To ensure fair pricing and compliance, businesses must adhere to:
Arm's Length Principle: The rule that transactions between related parties should be conducted as if they were between unrelated parties. Documentation Requirements: Maintaining proper documentation to justify transfer pricing decisions.