Site Loader
Rock Street, San Francisco

Transfer pricing is
the establishment of transfer prices that differ from market prices for
transactions between interdependent persons.

Thus, under the
transfer price it is accepted to understand the price established in economic
transactions between various participants of a single group of companies.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

The establishment of
prices between such companies is called transfer pricing.

Transfer prices allow
the redistribution of the total profit of a group of persons, in favour of
persons who are in states with lower taxes. This is the simplest and most
common scheme for minimizing the taxes paid, which inevitably requires
increased attention on the part of any state.

In the world practice
it is accepted to allocate 5 basic methods of transfer pricing: Transitional
transfer pricing, Market transfer pricing, Actual transfer pricing, Contractual
transfer pricing, Mixed transfer pricing.

The first transfer
pricing method, oriented to production costs, seems more accessible and easier
to apply. It can be used in the absence of market prices. There are three main methods for
determining the transfer price for costs: on variable costs per unit of output,
at full costs, taking into account marginal costs. The advantages of a costly
transfer pricing method include simplicity, the ability to control stakeholders
within the enterprise, the availability of specific performers.

The second method,
which focuses on the market price of the goods, is used in the event that this
price can be considered as the price of demand. This method has gained special
popularity in countries with market economies. The advantages of this method
are related to the objective nature of market prices, which do not depend on
the qualifications of the managers of the company’s divisions that make the
cost calculations. Transfer prices based on market prices are established when
there is a highly competitive market for the intermediate product. Then the
performance indicators of the units reflect the real economic contribution of
the unit to the total profit.

Post Author: admin


I'm Dora!

Would you like to get a custom essay? How about receiving a customized one?

Check it out