Transfer Pricing and Its Methods

The transfer pricing is the price determined during transactions between related parties and should be consistent with the prices determined in comparable transactions between independent parties under the same conditions.Transfer pricing applies to controlled transactions.Controlled transactions are transactions between related parties.The price applied in controlled transactions should be consistent with the price applied in transactions between unrelated independent parties under the same circumstances.If the prices of goods, works, or services provided or received within controlled transactions do not align with the prices of comparable non-controlled transactions, the tax authority will recalculate the tax for that transaction based on the transfer prices.The "arm's length" principle is the basis of the application of the transfer price.According to the "arm's length" principle, transactions between related parties must reflect terms of transactions between independent parties.5 methods are used to apply the transfer price.1) comparable uncontrolled price method; 2) resale price method; 3) the cost plus; 4) transactional net margin method; 5) the profit-split method.In the article, the concept of transfer pricing, rules of application, arm's length principle, and methods of transfer pricing application are thoroughly examined.