Transfer pricing refers to the pricing of goods, services, or intangible assets exchanged between related parties, such as subsidiaries, branches, parent companies, or affiliated entities, within a multinational enterprise. It involves determining the appropriate prices or charges for these transactions, as if they were conducted between unrelated entities in an open market.

The objective of transfer pricing is to allocate profits fairly and accurately among different entities within the multinational enterprise, taking into account the economic substance and value creation of each entity involved. Effective transfer pricing ensures compliance with tax regulations, prevents profit shifting, and supports the principle of arm’s length transactions.