Let's delve into the concept of transfer pricing, a crucial aspect of international taxation. Simply put, transfer pricing refers to the pricing of goods or services between related companies in different tax jurisdictions. To ensure fairness and avoid tax evasion, tax administrations follow the arm's length principle which requires the transaction to be at market value. This may result in adjustments to a company's taxable profits, made by the first jurisdiction, to reflect a fair price for transactions involving associated enterprises in the second jurisdiction.
