Tanzania: How multinationals engage in transfer pricing, denying governments revenue for social projects
"Transfer Pricing: The inevitable outcome of globalisation and trade development"
Globalisation and specialisation are some of the reasons for an increasing number of intercompany transactions. With resources, talents and specialisations spread out across the globe and with businesses seeking to efficiently access and utilise them, both cross and intra-border intercompany transactions are inevitable. Some studies indicate that more than 60 percent of world trade takes place within multinational enterprises (MNEs), and most of these are driven by factors other than tax avoidance. However, this also underpins the importance of transfer pricing. Transactions between third parties are priced at “selling prices” but when the same happens between related parties, they are done at a “transfer price” which may or may not be the same as the “selling price” that would apply between third parties. MNEs will eventually want to generate profits overall but this may not necessarily be the focus for each entity in the chain.