Multinational tax avoidance is proving to be a sore point for Australians. You’ve heard about the big players – Facebook, Google, Apple – and there is speculation they might be engaging in dodgy transfer pricing practices.
What is transfer pricing?
When two companies that are part of the same group trade with each other, they need to establish a price for that transaction. That amount is the transfer price.
Say an Australian-based subsidiary of Facebook buys something from a France-based subsidiary of Facebook. The price Australia pays for its purchase is the transfer price.
Transfer pricing is necessary. The two parties being separate legal entities have to establish a commercial contract. It is not illegal, and does no harm by itself. Transfer MISpricing, however, may do harm for government revenues. […]