Transfer Pricing
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Transfer Pricing |
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Description of Transfer Pricing. Explanation. |
Definition Transfer Pricing. Description.
Transfer Pricing (TP) refers to the process and practice of pricing exchanges of goods and services amongst divisions of large multi-divisional organizations.
TP is often a contentious political issue in corporations and especially amongst senior level executives. This is because the level at which transfer prices are set may negatively influence their division profits and as a result cause lower bonuses to accrue to the managers.
A second dimension of TP is to attempt to allocate profits and losses for each division in such a way that the corporate strategy of the overall corporation is supported in the optimal way. Thirdly, Transfer Pricing can be manipulated for taxation reasons: by charging low transfer prices from a unit based in a high-tax country that is selling to a unit in a low-tax country, a firm can record a low profit in the first country and a high profit in the second.
Compare also: Performance Management | Profit Center | Investment Center | Cost Center | Revenue Center | Expense Center |
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End of description Transfer Pricing. An explanation. |
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