Transfer Pricing (TP) refers to the pricing of
transactions between related entities within the
same multinational enterprise (MNE) group.
Since tax rates vary across countries, MNEs have
an incentive to structure their transfer prices to
minimize the group’s overall tax liability. This is
often achieved by shifting profits from high-tax
jurisdictions to low-tax or tax-haven countries.
The pricing strategy in such cases typically
deviates from the “Arm’s Length Principle” (ALP),
which establishes that the
transactions/arrangements between related
entities shall be priced as if they were conducted
between independent parties.