Fundamentals
Transfer Price
A transfer price is the amount charged when one entity within a corporate group supplies goods, services, intangibles or finance to another related entity. It must reflect what independent parties would have charged in a comparable transaction, forming the basis for allocating taxable profit between jurisdictions.
Transfer prices appear throughout a multinational group's operations: a manufacturing subsidiary sells finished goods to a sales affiliate, a parent company licenses a trademark to an overseas subsidiary, or a treasury centre lends funds to a group entity. Each transaction needs a defensible price supported by an appropriate.
Setting a transfer price too high or too low relative to arm's length levels can shift profit between countries, attracting the attention of tax authorities on both sides of the transaction. This is why groups typically set transfer prices using a documented methodology, tested periodically against actual results and updated as.
In practice
What matters when applying transfer price
- Applies to goods, services, intangibles and intercompany finance
- Must reflect arm's length market conditions
- Directly affects where profit is taxed
- Set using a documented, defensible methodology
- Reviewed periodically against actual trading results
Frequently asked
Common questions
How is a transfer price calculated?+
A transfer price is calculated by selecting an appropriate transfer pricing method, such as cost plus or TNMM, and applying it to comparable market data or benchmarked margins. The chosen approach must reflect the functions, assets and risks of the entities involved in the transaction.
What happens if a transfer price is wrong?+
If a transfer price does not reflect arm's length conditions, tax authorities can adjust the taxable profits of the entities involved, potentially leading to double taxation, interest charges and penalties, unless relief is available through mutual agreement procedures between jurisdictions.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.