Transfer Pricing

## Transfer Pricing

Transfer pricing governs how multinational companies price transactions between their own subsidiaries across different countries. It is one of the most significant international tax issues.

### The Arm's-Length Principle

Transactions between related entities must be priced as if the parties were unrelated (at arm's length). This prevents multinationals from shifting profits to low-tax jurisdictions by manipulating internal prices.

### Why It Matters for Salaries

Transfer pricing affects where profits are reported, which influences:
- Corporate tax revenue in each country.
- Local hiring decisions and compensation budgets.
- Bonus pools tied to subsidiary profitability.

### OECD Guidelines

The OECD Transfer Pricing Guidelines are the global standard. They prescribe five methods for determining arm's-length prices: CUP, resale price, cost plus, TNMM, and profit split. Country-by-Country Reporting (CbCR) requires large multinationals to disclose profits and taxes in each jurisdiction.