Transfer pricing
Financial Dictionary — Taxation
Definition
Pricing transactions between related parties.
Detailed Explanation
Transfer pricing refers to pricing of transactions between related parties, requiring that prices follow the arm’s length principle for tax purposes.
Common Uses
- Used when computing taxes, preparing returns, and documenting tax positions.
- Used to evaluate transaction tax impact and ensure compliance (VAT/GST/Corporate Tax).
- Used to evaluate transaction tax impact and ensure compliance (VAT/GST/Corporate Tax).
Practical Example
- Example: The tax team applies **Transfer pricing** to determine the correct tax treatment and to support the filing.
Why This Term Matters
- Why it matters: Reduces compliance risk, helps avoid penalties, and supports consistent tax reporting and defensible positions.