In short
Transfer pricing is the pricing of transactions between related entities, such as a parent and its foreign subsidiary. Tax law requires arm's-length prices, and the Internal Revenue Service can reallocate income when prices aren't.
Key takeaways
- Methods include comparable uncontrolled price, resale price, cost plus, comparable profits and profit split.
- Contemporaneous documentation helps avoid penalties on adjustments.
- An advance pricing agreement can settle the method in advance.
Where it's tested
TCP: Multi-Jurisdictional & International Basics — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A US parent sells goods to its foreign subsidiary. Under Section 482, the price charged must generally be: