| dc.description.abstract | Transfer pricing is an economics term. Economists define it in business economics as the cost that a part or segment of an organisation charges for a product or service that it supplies to another part or segment of the same organisation. (UN TP Manual, 2011) In conventional accounting literature, 'transfer pricing' is optimising profits by allocating costs and revenues among divisions, subsidiaries and joint ventures within a group of related entities (Sikka and Willmott, 2010, p. 342). Transfer pricing is carried out to maximise profits. A key way of maximising profits is reducing tax liability. For instance, a multinational corporation whose operations transcend different tax jurisdictions can take advantage of the varying treatment of tax in these countries to allocate its costs and revenue by way oftransfer pricing to reduce tax liability. In essence, revenue is attributed to tax jurisdictions with a lower tax burden. The result is revenue loss for jurisdictions with higher tax burdens. Revenue loss prejudices a country because it reduces the funds available for public use. I have illustrated the impact of revenue loss later on in this Chapter. Transfer pricing, therefore, requires regulation to protect revenue collection | |
