- Literally this only refers to the price charged on goods and services that are traded between subsidiaries of a multinational corporation. However, the term usually connotes the setting of such prices high or low so as to minimize the total taxes paid to different governments, in response to differences in corporate tax rates.
- (written as Transfer Price)This is a procedure used in the pharmaceutical and other industries to exploit the differences in tax rates in different countries. For example, when a manufacturer transfers goods to overseas subsidiaries, a high price is charged to those operating under high tax regimes so that the subsidiaries will have relatively low profits and hence low profit tax obligations, and a low price is charged to subsidiaries in low tax regimes, which will have larger profits but involve paying less profits tax. The idea is to achieve a net tax saving to the parent company from its global operation.