The price is defined as the value (most often expressed in monetary units) that the buyer must pay to the seller for the goods or services being the subject of the transaction.

Transfer pricing, on the other hand, is the price applied to all transactions carried out by entities between which there are capital, family or personal ties.

Transfer prices are also considered to be prices in transactions concluded with entities or contractors whose actual owner has their registered office or management board in a country applying harmful tax competition (the so-called “tax haven”).

The term “transfer price” was first used by Jack Hirshleifer in an econometric analysis. He built a model showing the equilibrium point between the marginal gross profit of the branch acquisition and the marginal marginal cost of selling it. The current legal status defines the transfer price as “the financial result of the conditions established or imposed as a result of the existing relationships, including the price, remuneration, financial result or financial ratio.

In addition, in legal acts and in the literature on the subject, the following definitions of the transfer (transaction) price can be found:

  • OECD Guidelines: “Transfer prices are the prices at which a company transfers goods and intangible goods or provides services to related companies.”
  • Tax Ordinance: “The transaction price shall mean the price of the subject of a transaction concluded between related entities within the meaning of the tax law relating to personal income tax, corporate income tax and value added tax”.

In accordance with the arm’s length principle, transfer prices applied between entities should correspond to prices that would be set by unrelated entities.