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Transfer Pricing Overview

What is Transfer Pricing?

It is the price of the transaction between related parties. It covers all types of transactions (goods, services, licenses, loans). The price can be determined as a fixed $ price, % (royalty or interest rate), or as a profit margin. Related parties - when a company is held more than 50% by another company (for example a parent company and a subsidiary).

For example, if a foreign subsidiary serves as an R&D center that provides software engineering services to its parent company. The transfer pricing is the compensation for these services paid by the parent company to the foreign subsidiary, which in this case are based on a Cost-Plus 10%.

 

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