transfer pricing

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The prices of goods and services provided by one part of any organization to another. This applies particularly to transactions between firms and their branches, subsidiaries, or affiliates in other countries. It is possible by using suitable transfer prices to shift overall profits between different parts of the same business. This may be advantageous when tax rates and rules differ across countries. It may also be politically advantageous if profits in one country are more likely to attract criticism, or the attention of regulators, than equal profits in another. Where there is a competitive market in similar products, an appropriate transfer price can be defined and used by a regulator to detect transfer price manipulation. When there are no arm's-length prices for comparable transactions the determination of fair transfer prices is a real problem.

Subjects: Economics.

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