Overview

Economic globalization is the primary underlying reason behind the ever-increasing growth in international transactions. A significant number of companies now no longer restrict their operational activities to the jurisdictions of their own countries but have also spread their tentacles overseas, becoming multinational and transnational corporations in the process. As a result of such expansions to locations outside of the relevant jurisdictions in which their headquarters reside, multinational and transnational companies now implement their overseas operations through subsidiaries or branch offices in the relevant countries. As a consequence, subsidiaries and branch offices operating under the umbrella of single multinational or transnational companies now engage in business with each other, thus establishing the concept of transfer pricing. Transfer pricing is an accounting practice that addresses the prices that a given division in a company charges another division for goods and services provided.[1]