“goods or services are exchanged between organisational units of the same company … a transfer price is a substitute for a market price.”

Transfer pricing is a tool that can be used to move money around the world in order to maximise profits and minimise tax. The details of how this is done will be briefly described later.

What is best for the firm, in terms of profit maximisation, is not, however, best for a government which stands to loose tax revenue as a result. Companies, by reducing the tax they pay in a certain country, reduce the revenue of the government of that country – which means that there is less money to pay for social servi

The degree to which transfer pricing policies will be used or abused depends largely on the philosophy of top management. Profit maximisation is important, but it is not the only goal that needs consideration. Being a good corporate citizen can actually do more for profit maximisation than cheating and tax evasion. Short term versus long term outlook of management are important in determining which direction the firm will take, and ethics also play a role. Cooperation and collaboration should be more productive than manipulation, but the practise of firms in today’s world suggests that many are not willing to work in the spirit of absolute collaboration and cooperation with governments. Trust is a very important issue. Not only the extent to which governments can trust firms, but also the extent to which firms can trust governments. It will be interesting to see how this situation develops in the near future.

“It is the fact that the various parts of the organization are under some form of common control that is important for the tax authority, as this may mean that transfers are not subject to the full play of market forces.”

Some topics in this essay:
Benke Edwards, Taxation Governments, Gernon Meek, Hodgetts Luthans, Introduction Companies, Mexico Japan, XYZ Ltd, Japan Japanese, Griffin Pustay, transfer pricing, Vs Equity, profit maximisation, transfer price, xyz ltd, tax revenue, inflated transfer price, pay tax, inflated transfer, territorial principle, principle taxation, firm question, income earned outside, earned outside country’s, gernon meek 2001, transfer pricing issue,