Transfer pricing is the general term for the pricing of cross-border, intra-firm transactions between related parties. Transfer pricing, therefore refers to the setting of prices at which transactions occur involving the transfer of property or services between associated enterprises (AEs), forming part of a multinational enterprise (MNE) group.¹

Transfer pricing as an arm of law and anti-avoidance developed with the emergence of MNEs and cross border transactions (financial and commercial) between entities of the same group.

As corporations expanded their foothold in various jurisdictions through subsidiaries, permanent establishments (PEs), foreign associates, etc., it fundamentally altered the way business transactions were done. The volume of transactions within an MNE group increased multi-fold. As intra-group transactions increased, transfer pricing became one of the most contentious topics of international taxation.

The nature of transactions between AEs has changed dramatically since the early 20th century.

Technological innovations, new forms of property (both tangible and intangible) and the manner in which corporate entities can profit from or transact with them have required mechanisms by which jurisdictions regulate transfer pricing to keep pace.