transfer price

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Transfer price

The price at which one unit of a firm sells goods or services to another unit of the same firm.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Transfer Price

The price a division of a company charges a different division of the same company for a good or service. Transfer prices are important especially for large, decentralized corporations where each division reports its own profits and losses separately. The transfer price is usually roughly the same as the market price for the good or service. See also: Section 482.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

transfer price

The price at which an item is transferred internally between two units of the same company. An oil company engaged in drilling, refining, and marketing must determine the price of the product as it is passed through the chain from oil field to service station in order to determine the profitability of each stage.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

transfer price

the internal PRICE at which raw materials, components and final products are transacted between the divisions or subsidiaries of a vertically integrated or conglomerate firm.

The transfer price charged may be set by reference to the prices ruling in outside markets for inputs and products (arms-length pricing). Alternatively, the transfer price may be set at a lower or higher level than the going market price, according to some internal accounting convention (for example, cost of production plus standard profit mark-up) and the desired ‘profit split’ between the firm's activities. Such administered transfer prices would generally be designed to achieve the firm's overall profit goals, but in transfer pricing decisions there may often be an inherent conflict between the overall goals of the firm and the goals of its subunits. For example, if one COST CENTRE is allowed to transfer components at cost of production plus a specific mark-up, then it has little incentive to minimize its production costs. Again, where a PROFIT CENTRE does not have discretion over its buying or selling prices but must buy or sell some or all of its inputs or outputs to other subunits at transfer prices established by headquarters, then the profit performance of the subunit will not depend solely upon the efforts of local managers, making it difficult to evaluate the performance of subgroup managers and motivate them to improve efficiency.

Transfer pricing gives a firm added flexibility in pricing its products. It may deploy transfer pricing to gain a competitive advantage over rival suppliers (to PRICE SQUEEZE a non-integrated rival), in the case of a MULTINATIONAL ENTERPRISE, transfer pricing provides an opportunity to increase its profits by setting transfer prices across national frontiers in such a way that most of the firm's profits accrue in countries where company taxation rates are the lowest. In addition, inflated transfer prices for components or services may be used to remit surpluses back to the parent company from subsidiaries located in countries which limit the repatriation of profits through dividend controls or EXCHANGE CONTROLS. See INTERNALIZATION, TAX HAVEN, VERTICAL INTEGRATION, DIVERSIFICATION, SHADOW PRICE, MIXER COMPANY.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

transfer price

the internal PRICE at which FACTOR INPUTS and PRODUCTS are transacted between the branches or subsidiaries of an integrated firm (see TRANSACTION, VERTICAL INTEGRATION, DIVERSIFICATION). The transfer price may be set by reference to the prices ruling in outside markets for inputs and products (arm‘s-length pricing) or it may be administered (see ADMINISTERED PRICE) according to some internal accounting convention (for example, a FULL-COST PRICE).

Transfer pricing gives a firm added discretion in pricing its products, and the danger is that it could well be tempted to employ ‘manipulative’ transfer pricing to harm competitors (for example, PRICE-SQUEEZE a non-integrated rival firm) and, in the case of a MULTINATIONAL COMPANY, to boost its profits (for example, transfer price across national frontiers so that the greater part of the firm's profits are received in a low-taxation economy).


Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
After the approval of the Second Supplementary Finance Bill 2019 by parliament, the Directorate General of Transfer Pricing would be dissolved.
Transfer Pricing (TP) is a practice that allows for pricing transactions internally within businesses and between companies that operate under common control or ownership, including cross border transactions.
The DOF pointed out that there are three possible types of transfer pricing abused by some corporations, namely, international transfer pricing, in which profits are shifted from high-tax areas to low-tax jurisdictions; domestic transfer pricing, in which firms shift profits to related companies in economic zones or to related parties enjoying tax incentives; and intra-firm transfer pricing or misallocation of profits and costs, which happens when a company with activities in different tax regimes manipulates revenues and costs to minimize their tax obligations.
The two-day training on Capitol Hill is supported by the World Bank, and is part of ongoing efforts to strengthen the capacity of Liberian judiciary in adjudicating transfer pricing cases.
Miesel as a partner, National Transfer Pricing Practice leader and chief economist.
During the past decade; a growing number or governments--with an ever expanding degree of vigor--have placed emphasis on transfer pricing compliance, tax revenue collected, and the methods by which multinational enterprises measure, recognize, report and document their taxable income.
Richard has more than 25 years of experience.His experiences include bilateral and multilateral APAs and Mutual Agreement Procedures, design, planning, documentation, implementation and defense of complex transfer pricing structures, transfer pricing controversy/dispute resolution/audits, tax and transfer pricing control frameworks.
The transfer pricing landscape has changed considerably in the quarter century since the APA program was launched.
Keywords: transfer pricing, tax avoidance, intangibles, arm's length principle, profit allocation
THE government has directed the Income Tax ( IT) Department to keep in mind the rationale behind the Bombay High Court ( HC) verdict in the Vodafone transfer pricing case when dealing with similar cases.
12, 2014, the IRS Large Business &International (LB&I) division released general guidelines and rules of engagement for LB&I examiners employed in the Transfer Pricing Practice (TPP) and the International Business Compliance unit (IBC) involved in the examination of transfer-pricing issues.