Transfer Pricing

Tax Glossary Definition

Transfer Pricing

Refers to the process of setting prices for goods, services, or intellectual property exchanged between related or affiliated entities, often located in different countries. The goal is to ensure transactions reflect an arm’s length price—the same value that would apply between independent parties—thereby preventing artificial profit shifting or tax avoidance.

Example: If an Indian manufacturer sells machinery to its foreign subsidiary, the sale price must align with the arm’s length principle to meet transfer pricing rules.

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