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What is the internal transfer price?

  • Management Dictionary
  • Management Control

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The transfer price (also known as the internal transfer price) corresponds to the selling price applied in a transaction between two economic units or two affiliated companies.
It serves to value internal transactions, align the objectives of the associated entities, motivate teams, and optimize both profit and taxation.

From a purely computational standpoint, two main approaches can be distinguished: those based on the cost of the operation, and those based on the market price.
However, when affiliated companies are located in different countries, the OECD has established principles governing how transfer prices should be determined.
These principles aim to ensure compliance with the arm’s length principle and to reduce the risk of tax evasion.

The determination of transfer prices therefore raises important strategic questions.

Mots clés
  • Arm’s length principle, Internal transfer price, OECD, Transfer price

Auteur.e(s)

TAHAR Caroline
Associate Professor
iaelyon School of Management

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