Transfer pricing determines the prices for transactions between affiliated businesses operating in different countries. When planning to conduct business in a foreign jurisdiction from the U.S., one of the first steps is to understand the transfer pricing norms in both locations.
U.S. businesses need to establish a clear inter-company transfer pricing strategy when expanding globally. By explicitly defining the pricing of goods, services, and intellectual property among related entities, companies can ensure transparency, consistency, and tax efficiency.
A poor transfer pricing strategy can significantly affect corporate tax liability, profit repatriation, and risk exposure. Inadequate documentation or incorrect pricing may lead to tax disputes and penalties in the U.S. and foreign jurisdictions.