Transfer pricing refers to the pricing of goods, services, or intangible assets transferred between related entities within a multinational company. It is a critical aspect of international taxation and involves setting prices for transactions between different divisions, subsidiaries, or affiliates of the same company, often located in different countries.

Here’s a brief overview of transfer pricing:

1. **Purpose**: The primary purpose of transfer pricing is to determine fair and reasonable prices for intercompany transactions to ensure that profits are allocated appropriately among the various entities within the multinational enterprise.

2. **Related Parties**: Transfer pricing regulations apply when transactions occur between related parties, such as a parent company and its subsidiaries, or between entities under common control.

3. **Arm’s Length Principle**: The cornerstone of transfer pricing regulations is the arm’s length principle, which requires that the prices charged in intercompany transactions be comparable to those that would be charged between unrelated parties under similar circumstances.

4. **Documentation Requirements**: Multinational companies are typically required to maintain detailed documentation to support their transfer pricing policies and demonstrate compliance with local tax laws and regulations.

5. **Methods of Transfer Pricing**: Various methods can be used to determine transfer prices, including the comparable uncontrolled price method, resale price method, cost-plus method, transactional net margin method, and profit split method. The choice of method depends on the nature of the transaction and the availability of comparable data.

6. **Global Standards**: Many countries adhere to guidelines provided by organizations such as the Organisation for Economic Co-operation and Development (OECD), which sets forth principles and best practices for transfer pricing to promote consistency and transparency across jurisdictions.

7. **Tax Planning and Compliance**: Effective transfer pricing policies can help multinational companies optimize their tax positions by allocating profits to jurisdictions with favorable tax rates while ensuring compliance with local tax laws and regulations.

8. **Risk of Tax Adjustments**: Transfer pricing is a highly scrutinized area by tax authorities worldwide, and companies face the risk of tax adjustments, penalties, and double taxation if their transfer pricing practices are found to be non-compliant.

In summary, transfer pricing is a complex and critical aspect of international taxation that requires careful consideration and compliance with relevant regulations to avoid tax disputes and ensure that profits are fairly allocated among related entities within multinational enterprises.