Tipi Tips #2: Why is transfer pricing relevant?

A question you may ask yourself is: why is this vague area of transfer pricing relevant for me? In other words, why should you care?

As you can imagine, multinational companies buy and sell cross-border within their own group. Let’s use another example. Imagine a Dutch company that sells a product to its sister company in Germany. It sells this product at a discount ordinary clients would not get. Naturally, that is nice for the German company. It receives a cheap product and therefore makes more profit. But the Dutch company in turn makes less profit. In this way, you could ‘choose’ which of your companies makes a profit and which makes a loss. This could encourage tax planning and tax avoidance. The example above can cost the Netherlands millions in lost tax revenues when you apply it on a large scale. That is why tax authorities are interested in this topic, and why transfer pricing is relevant to companies as well.