transfer pricing

Transfer pricing is the internal price charged between different departments or subsidiaries for services exchanged within the company.

The term transfer pricing is assigned to the area of management accounting, whereby internal activities are valuated by cost centers and thus contribute to the correct settlement of the cost of goods sold. From an economic point of view, transfer prices are interesting above all because they bear a tax optimization potential and inherit an incentive and steering function. Three main methods of transfer pricing can be distinguished:

  1. Market price-oriented transfer prices: By simulating a market, prices are allocated as they are on an external market.
  2. Cost-oriented transfer prices: The transfer prices are determined based on full costs or marginal costs.
  3. Negotiated transfer prices: Transfer prices are determined through negotiations between the parties involved.