Transfer Pricing Definition: When one branch or related party of a multinational company in one country transfers goods, services or know-how to another part / branch in another country, the price charged for these goods or services is called 'transfer price'. And transfer pricing is a method to compute this price. Generally the transaction between these related parties should happen at an arm length price. Recently we have provided complete details on Transfer-Pricing Case Studies now u can scroll down below n check complete details regarding Transfer Pricing Definition & Transfer Pricing Methods.If you like this article then please like us on Facebook so that you can get our updates in future ……….and subscribe to our mailing list ” freely “
Example :If ABC ltd is Singapore based company having branches in almost all countries in Asia . In India its operations are being carried on by BAC Ltd. a 100% subsidiary of ABC Ltd. When any transaction takes place between the two entities which results an impact on the amount of tax to be paid then in such cases transfer pricing arises.
Arm length price :The "arm's length price" of transfer pricing means the amount charged by one related party to another for a given product / service must be the same as if the parties were not related. An arm's length price for a transaction is therefore what the price of that transaction would be in the open market. Must Read - Nostro Account and Vostro Account Complete Details
Transfer pricing methods in India :
A. Price based methods :1.Comparable Uncontrolled Price Method .
1. Comparable un controlled method :In this method
2. Cost plus method :
In other cases, it can be applied only where the other party is treated as ‘Tested Party’. Must Read - 52 weeks High & 52 weeks Low price
3.Resale price methods :
2.Marketing & Promotion are considered value additive unless they are routine in nature.