Related Business Entities Must Understand Transfer Pricing Before Crossing Borders
As businesses grow, they may decide to operate in different states or countries using related entities. This may involve a parent and subsidiary arrangement or brother-sister companies with a common parent. "Transfer pricing" refers to how such related entities price intercompany transactions involving goods, services or intellectual property. This pricing affects income tax liability in applicable jurisdictions—and a taxing authority might audit a business it suspects of using transfer pricing to inappropriately reduce tax liability in its jurisdiction.