When a business transaction occurs between businesses that are controlled by the same entity, the price is not determined by market forces, but by the entity controlling the two businesses. This is called transfer pricing. An example is a transaction between a parent and its subsidiary, or other intra-group transactions.

These transactions can be used to shift funds – and thereby profits. Such transactions can serve as a tool for finance and tax planning. For instance, China’s foreign currency control regulations only allow one dividend issuance to a foreign entity a year. Moving funds out of China by using inter-company transactions can then offer a solution.

In this new report on Transfer Pricing, Dezan Shira & Associates discuss what types of transactions foreign investors can use to shifts funds in this way. [Read more…]