Transfer pricing refers tot eh pricing of goods/services among unit within corporation. Essentially pricing decisions are affected by the following factors:

I.    income tax liability within the host country.
II.    Tariff and/or custom duties.
III.    Exchange controls.
IV.    Profit repatriation restriction.
V.    Quota restrictions
VI.    Predict status.

For setting transfer prices companies usually set guidelines like the following:

•    All domestic and foreign units are profit countries and transfers must be set at levels that yield a reasonable profit to both the selling and buying units.

•    Profit is dividing according to functions performed in producing and marketing goods to unrelated buyers.

•    Gross margins (the spread between production and distribution cost and the sale to an unrelated buyer) are divided more or less evenly between domestic producing and foreign marketing units.

•    Overall impact on consolidated profit is the paramount consideration and profit is taken where it sis best for the total corporation.

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