International Aspects of Transfer Pricing:

The objective of transfer pricing change when multinational corporations involved and the goods and services being transferred cross international borders.

The objectives of international transfer pricing, as compared to domestic transfer pricing are summarized below:
 

Transfer Pricing Objectives
Domestic Greater divisional autonomy Greater motivation for managers Better performance evaluation Better goal congruence	International Less taxes, duties and tariffs Less foreign exchange risks Better competitive position Better governmental relations

The objective of international transfer pricing focus on minimizing taxes, duties, and foreign exchange risks, along with enhancing a company's competitive position and improving its relations with foreign governments. Although domestic objectives such as managerial motivation and divisional autonomy are always important, they often become secondary when international transfers are involved. Companies will focus instead on charging a transfer price that will slash its total tax bill or that will strengthen a foreign subsidiary.

For example, charging a low transfer price for parts shipped to a foreign subsidiary may reduce customs duty payments as the parts cross international borders or it may help the subsidiary to compete in foreign markets by keeping the subsidiary's costs low. On the other hand, charging charging a high transfer price may help a multinational corporation draw profits out of a country that has stringent controls on foreign remittances, or it may allow a multinational corporation to shift income from a country that has high income tax rates to a country that has low rates.

 

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