OECD - Transfer Pricing

• The structure of transactions within  an MNE group is determined by a combination of the market and group driven forces which can differ from the open market conditions operating between  independent  entities.


• Thus, a large and growing number of international transactions are no longer governed entirely by market forces, but by forces which are driven by the common interests of the entities of a group.


• In such a situation, it becomes important to establish the appropriate price, called the "transfer price", for intra group, cross-boarder transfers of goods, intangibles and services.
• Hence Transfer pricing
  
  “is the general term for the pricing of cross-border, intra-firm transactions between related parties. Transfer pricing refers to the setting of prices for transactions between associated enterprises involving the transfer of property or services.”

Further, note that these transactions are also referred to as "controlled" transactions distinct from "uncontrolled" transactions between companies that are not associated and can be assumed to operate independently ("on an arm's length basis") in reaching terms for such transactions.