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provide a paragraph with 5 lines providing an opinion on this text: Transfer pricing refers to the price at which divisions of a company or
provide a paragraph with 5 lines providing an opinion on this text: Transfer pricing refers to the price at which divisions of a company or associated companies under the same corporate control sell goods, services or intellectual property to each other; They represent a crucial element in the strategic management of multinational companies, allowing the appropriate allocation of revenues and costs between different divisions or subsidiaries in different jurisdictions. This practice not only meets tax and regulatory requirements but also plays a vital role in optimizing operational efficiency, profitability, competitiveness and risk management. Below, its use and importance is explored from different points of view: Operational Point of View From an operational perspective, transfer pricing facilitates the efficient allocation of resources within a multinational company. This includes determining how costs of production, services, patents and royalties are allocated between different entities of the same organization in various countries. A notable example is the case of Apple Inc., which uses transfer pricing to allocate its product development costs among its international subsidiaries, thus optimizing its global cost structures. This allows them to maximize efficiency in the production and distribution of their products worldwide. An outstanding practice in this area is the implementation of robust internal accounting systems that allow detailed monitoring of transactions between the different entities of the company. This approach was adopted by companies such as Siemens and General Electric, which have established sophisticated internal processes to ensure that transactions between their subsidiaries reflect fair market conditions, allowing them to optimize their global operations and improve overall company performance. Profitability Point of View Transfer pricing has a direct impact on the profitability of companies by influencing the distribution of taxable income between different tax jurisdictions. By setting transfer prices for internal transactions, companies can influence the location of their profits, taking advantage of lower tax rates in certain jurisdictions. Google, for example, has used structures such as the "Double Irish with a Dutch Sandwich" to reduce its global tax burden, allocating income to subsidiaries in countries with favorable tax rates, which increases its overall profitability. One of the best practices in this area includes conducting transfer pricing studies that help companies establish and defend their internal pricing policies before tax authorities. Starbucks, for example, adjusted its transfer pricing practices in Europe after receiving criticism for paying minimal taxes, demonstrating the importance of adapting transfer pricing strategies to an ever-changing regulatory environment, maximizing profitability while maintaining Legal compliance. Competitive Point of View Strategically, transfer pricing can be used to improve a company's competitive position. By optimizing the allocation of costs and revenues, companies can offer more competitive prices in specific markets without compromising overall profitability. For example, Amazon has used transfer pricing to efficiently allocate costs across its various subsidiaries, allowing it to offer competitive prices in its target markets while maintaining healthy profit margins globally. Using transfer pricing strategically can allow companies to react quickly to market changes and adjust their pricing strategies to maintain or improve their market position. Adaptability and periodic review of transfer pricing policies are key practices in this regard. For example, companies such as Dell and HP regularly adjust their transfer prices to reflect changes in production costs and market conditions, allowing them to be more price competitive in specific markets without sacrificing overall profitability. Risk management From a risk management p
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