Transfer Pricing, Pricing in Multinational Companies

Abstract

Globalization is one of the most important characteristics of modern business conditions. In order to achieve a competitive advantage in the global market, companies begins to expand its operations beyond the borders of one country. A very important factor in the business of multinational companies are the prices at which it is exchanged goods and services between branches, ie. transfer prices. The application of transfer pricing is an important issue both in terms of multinational companies, and from the standpoint of tax authorities. Intercompany commerce is becoming a very important component of world trade and dominant market power that many multinational companies hold in certain industries, providing considerable scope for the policy rate, which could result in abuse of such power. Such an abuse occurs through the manipulation of prices of goods and services sold within the company, including transactions between the parent and subsidiary and between branches. Because of the many abuses that occur, countries around the world are forced to find numerous solutions and take action to protect their income. This is achieved by stricter regulations in the field of taxation, more frequent audits of operations of multinational companies and the adoption of a guide and framework for determining transfer prices. [ABSTRACT FROM AUTHOR]