A brief introduction about Transfer Pricing, it's importance, purpose and methods.

1. TRANSFER PRICING
Global Competitiveness, Value Chains &
Alliances

2. A price which is paid for goods/services
transferred from one unit of an
organization to it’s other unit
If subsidiary company
sold goods to parent
company and the
price or cost of goods
paid by parent
company to
subsidiary company
for that goods is
referred as “Transfer
Pricing”
Concept
Examples

3. To maintain divisional
autonomy
To allocate resources and use
them efficiently
To provide information
for decision making To minimize the liability
to pay taxes
OBJECTIVES

4. Methods
Cost Based
Market
Based
Negotiated Based

5. STANDARD COST
ACTUAL COST
COST PLUS METHOD

6. Transfer price is
determined
according to the
price prevailing
in the market
Under this method
Market Based

7. Under this
method, transfer
pricing is fixed
according to
negotiation
between selling
and buying
divisions.
Negotiated
Based

8. Self advancement,
generated high
productivity
Allocation of
company’s financial
resources
Divisional
performance
evaluation made
easier
Information in
coordination between
different divisional
departments
ADVANTAGES

9. Extra time, power,
money is required
Do not work
equally
Highly complicated
Difficult to manage
accounts
Difficult to estimate
right amount of
pricing policy
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DISADVANTAGES

10. The transfer price becomes an
expense for the receiving manager
and revenue for the supplying
manager
They affect the individual results of associated
enterprises and therefore the amount of taxes they
pay
The transfer price is used for the
accounting purposes
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Conclusion