Highlights

The expansion of transnational corporations abroad necessitates the transfer of tangible and intangible assets (including services) between parent corporations and their foreign affiliates. One issue that arises in this context is how to establish prices for these cross-border transfers. Transfer pricing frameworks can, in principle, promote reasonable tax revenues for the countries involved and, at the same time, establish a fair tax liability on corporations. For these reasons, transfer pricing issues raise important and often contentious policy questions for host and home governments, as well as for transnational corporations, as transfer pricing methods directly affect the amount of profit reported in host countries by corporations, which in turn affects the tax revenues of both host and home countries.