Transfer prices are prices at which two related parties transact with each other. These parties might be related financially or share the same key executives. Under tax legislation, transfer prices must be set on an arm’s length basis, i.e. equal to the price that would be contracted between two unrelated entities.
Typical related party transactions include, for example:
- sale of intermediate products or finished products
- provision of intangible assets (licensing)
- sale or lease of real or movable property
- provision of financing or funding
- provision of guarantees and other forms of collateral