Transfer Pricing in International Business

CHAPTER 2

The Theory of Transfer Pricing

Introduction

Around the world, the things we buy increasingly have a transnational source. People in Japan wear Levi’s, while Americans drive Toyotas and Cypriots eat Dutch fruit. Yet, despite the fact that we are consuming more international products than ever before, one of the ways in which nations remain distinct is in how high or low prices are in their local markets. That Chilean wine costs more in Nicosia than Santiago should come as no surprise. It has longer to travel and more associated costs in getting it to market. The same applies to other important consumer goods, such as petrol and flour, yet local products are not always the cheapest. We like to think that the closer a product is to its ...