Transfer pricing is a sound legal way to reallocate funds within a corporation between departments. The chocolate department may be doing well during valentines day, while the ice cream is doing poorly. In order to keep both functioning, the funds are transferred from chocolate to ice cream. Once summer hits, the inverse is true. More ice cream sells and less chocolate, except for M&M's. They melt in your mouth, not in your hands. However, these transfers should be monitored, and restricted. This could be used to reallocate losses as well as gains in order to mask losses. Transfer pricing is fine as long as its done responsibly.
Yes, transfer pricing should be allowed, because it allows a company to pay taxes on its business to several different countries where it does business. That in turn allows the governments in several different countries to benefit from the profit that the business does. It is a good way to allocate taxes.
Transfer pricing, the practice of allocating pre-tax profit to different coutnries where a multi-national corporation has offices, allows for a corporation to charge itself for services rendered. By doing this, a division which is commonly held to be unprofitable in one country can show an overall profit for the company by showing how much work it does within the corporation.
Dell operates call centers in India taking support calls from the US. Because there is little profit generated through answering questions on in-warranty items the India division of Dell may show a negative profit. By using transfer-pricing the India division can show that they are providing a valuable support to the company that makes keeping their division operating.
The negative, of course, is that many corporations will use transfer pricing to simply move profitability out of countries where tax rates high and into countries where tax rates are low. This has a negative impact on the tax revenues of major countries, such as the US, where corporate tax rates are the highest in the world. The lopsided tax structure, linked with large loopholes such as this, means that corporations pay much less tax as a percentage of their operations.
Over-taxing will drive those corporations to be astute in not bringing in new investments to the US and drive the move towards more business friendly shores, though. Thoughtful, thorough reforms, that do not concentrate on punitive measures, but instead make it easier and cheaper to pay taxes within the system will encourage businesses to remain in the USA, foster the incubation of new business without stifling its growth or pushing industrial processes offshore.
The moves by the current administration to aggressively punish some corporations, while giving lavish tax benefits to sickly industries that have not shown the proclivity for profitability, but do have the friends of the administration at the wheel, are doomed to drive more and more businesses offshore or simply into the ground. The multi-national corporations that can continue to use transfer-pricing to move profits away from the US will continue to do so and reduce operations within the US.
I think that transfer pricing should be allowed. It is a policy that I think is useful and has a place in the business world today. It is something that I think is very beneficial when it comes to the pricing of goods and services. And I think it is something that is here to stay.