Introducing “pricing and transfer pricing decision”

• Pages: 217-225

217

Balkan Journal of Interdisciplinary Research

IIPCCL Publishing, Graz-Austria

ISSN 2410-759X

Acces online at www.iipccl.org

Vol. 7 No.1

May, 2021

Introducing “pricing and transfer pricing decision”

PhD (C.) Redvin Marku

Department of Accounting, University of Tirana, Rruga Elbasanit, Tiranë, Albania

Abstract

The essential feature of decentralization in large rms is the creation of responsibility centers

(e.g. cost, prot, or investment centers). The performance of these responsibility centers is

evaluated on the basis of various accounting numbers, such as standard and actual cost,

divisional prot or return on investment. A central role of the management accounting system

therefore is to evaluate the transactions between the dierent responsibility centers. Under

the subject cost allocation we studied alternative methods to charge user departments for the

services rendered by service departments (frequently cost centers).

Transfer pricing is a prot allocation method used to aribute a corporation’s net prot or

loss before tax to tax jurisdictions. Transfer prices are the charges made between controlled

(or related) legal entities i.e. within the same group. Legal entities considered under the

control of a single corporation include branches and companies that are wholly or majority

owned ultimately by the parent corporation. Certain jurisdictions consider entities to be under

common control if they share family members on their boards of directors.

Transfer prices are used to evaluate the goods and services exchanged between prot centers

(divisions) of a decentralized rm. Hence, the transfer price is the price that one division of

a company charges another division of the same company for a product transferred between

the two divisions.

It refers to the seing, analysis, documentation, and adjustment of charges made between

related parties for goods, services, or use of property (including intangible property). Transfer

prices among components of an enterprise may be used to reect allocation of resources

among such components, or for other purposes.

Keywords: transfer pricing, cost centers, pricing, cost plus method.

Introduction

Transfer pricing is a prot allocation method used to aribute a corporation’s net

prot or loss before tax to tax jurisdictions. Transfer prices are the charges made

between controlled (or related) legal entities i.e. within the same group. Legal entities

considered under the control of a single corporation include branches and companies

that are wholly or majority owned ultimately by the parent corporation. Certain

jurisdictions consider entities to be under common control if they share family

members on their boards of directors.

It refers to the seing, analysis, documentation, and adjustment of charges made

between related parties for goods, services, or use of property (including intangible

property). Transfer prices among components of an enterprise may be used to reect

allocation of resources among such components, or for other purposes. OECD Transfer

Pricing Guidelines state, “Transfer prices are signicant for both taxpayers and tax