What is transfer pricing?

Transfer pricing governs how related entities price their transactions. When one subsidiary bills another for services, the transfer price affects where profit appears and what taxes are owed. Tax authorities scrutinize transfer pricing to prevent profit shifting. Prices must reflect arm's length terms, meaning what unrelated parties would charge each other.

Transfer pricing for multi-entity structures

Professional service firms sometimes operate through multiple entities to protect their liability or for tax planning. If Entity A provides administrative services to Entity B, the intercompany charge must be reasonable and documented—set prices based on comparable market rates or cost-plus methods. Maintain documentation justifying your approach.

When transfer pricing becomes complex

Cross-border transactions face additional scrutiny. Different countries have different rules and may both claim the right to tax the same income. Formal transfer pricing studies may be required above certain thresholds. If your structure involves international entities or significant intercompany transactions, work with specialists to establish compliant pricing.