Question

I NEED 2 PARAGRAPHS ANSWERING THIS

What are the issues associated with transfer pricing? Give details to support your discussion.

Answer 1

As we know that transfer pricing is used by various companies worldwide due to its’ various benefits.

But we should know that there are some issues associated with the use of this transfer pricing method. So apart from benefits of transfer pricing we should know the main issues associated with transfer pricing method;

1. It is not very simple to use transfer pricing method in case of differntial product and we know that in modern time most of the companies are involved in manufacturing differential products. That is why it becomes very difficult to use this transfer pricing method for these various companies due to differntial products.

2. In modern time most of companies have various divisions, so adopting transfer pricing in case of various divisions will lead to conflict among these division and finally due to confliction there will be a lot of inefficiency inside the company.

3. Adoption of transfer pricing method will lead to higher costs, higher manpower requirement and high level accounting system. In other words we can say that this pricing will lead to higher costs for a company.

4. As we know that multination companies operate in various countries and also have various interconnected divisions. So adoption of transfer pricing method result into various negative impacts for the multination companies.

Thus finally we can say that inspite of having various advantages, transfer pricing method have some issues in implementation. That is why this method should be adopted after making proper provision for the associated issues.