Transfer pricing takes place when MNCs require the local affiliate

Question

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Transfer pricing is a strategy used by MNCs to maximize their global profits by setting prices for the goods and services exchanged between their subsidiaries located in different countries. In this regard, MNCs require the local affiliate to purchase inputs from other subsidiaries at prices set by the parent company to ensure the transfer of profits from higher tax to lower tax countries. This allows MNCs to reduce their tax liabilities in high-tax countries and increase profitability in low-tax countries.

Transfer Pricing Takes Place When MNCs Require the Local Affiliate