What is transfer pricing?

The so-called transfer pricing refers to the behavior of multinational companies in the transactions between affiliated enterprises, which is lower or higher than the normal market transaction price in order to obtain the overall maximum interests of the enterprise group. Transfer pricing between affiliated enterprises is the most commonly used method for multinational companies to avoid taxes internationally. Multinational companies often transfer the profits of affiliated enterprises in countries with high tax burden in this way, thus reducing the overall tax burden of the group and improving the overall interests of multinational enterprise groups. There are many ways of transfer pricing, mainly in the following aspects:

First, by controlling the prices of raw materials and parts, the product cost is affected.

Second, by purchasing and leasing the fixed assets of affiliated companies, the cost of their products will be affected.

Thirdly, controlling the collection level of patent fees through the transfer of intangible assets such as patents, know-how and trademarks will affect the costs and profits of affiliated companies.

The fourth is to transfer benefits by charging higher or lower transportation fees, insurance premiums, loan interest fees, management fees, etc. between affiliated companies.

Economic globalization makes the application of transfer pricing more common and hidden, which challenges the tax jurisdiction of the country.