Transfer pricing

It implies the techniques of charging

for goods and services transferred
from one undertaking to another
within the same group.
 Alternative approaches
• Transfer at direct cost
• Transfer at direct cost plus
overhead and margin
• Transfer at a price derived from
end-market prices
• Transfer at an “arm’s-length” price
 Financial dimensions of
transfer pricing
Minimization of global tax liability
not the be-all and end-all of
transfer pricing. Other aspects
include:
II. The relationship between transfer
pricing and external pricing for
that market.
III.Impact and incidence of customs,
octroi, sales tax, excise duty and
other indirect taxes.
I. Implications of tax concessions
available to units operating in
backward areas and to new units as
such.
II. Unit-by-unit assessment of cash
inflows, outflows, and fluctuating
balances from time to time in
juxtaposition to the day-to-day
needs, future commitments and the
required level of re-investment in
each case.
I. Additional burden of transport,
storage, packaging, marketing and other
costs attributes to the techniques of
transfer pricing
II. The need to adjust long-term capital
structure and to adopt short term
borrowings/investment/reinvestment
programmes at multi-national
headquarters and local offices
I. The likely loss or gain on account of
fluctuations in foreign exchange rates
from time to time
II. The extent to which multinational
transfers are so designed that the MNC
acquires and organizes into production
various factor inputs from and at
different places in the world, and
market worldwide under the least cost
and maximum profit principal.
I. The type of labour unrest and
socio-political transactions created
in various countries due to multi-
national transfers and their impact
on the future financial flows of
the MNC
II. The nature of government
restrictions on multinational
transfers and their effect on the
MNCs financial performance.
I. The implications of UN’s new
international economic order and of the
respective bilateral/multilateral
arrangements, as also of various
global/regional institutions such as
World Bank, IMF, IDA, IFL, European
Community, etc.
II. The overbearing impact of
environmental factors in various
countries on the product life cycle and
overall financial viability of the MNC.
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Subsidiary Subsidiary
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Country y C sells products to B Country z

In multinational business, a plethora of
transfer take place between the
parent/apex/holding company and its
subsidiaries/associates/affiliates
parity on account of their inherent
specifications i.e. comparative
advantage in respect of certain
functions/services/areas of
operation and parity as part of the
global strategy to minimize tax and
other such liabilities.