How do governments apply transfer pricing rules?

Transfer pricing rules are a set of regulations imposed by governments in order to ensure that companies do not pay too little or too much in taxes when they move goods, services, or money across international borders. These rules are designed to ensure that companies do not take advantage of different tax systems in different countries. Transfer pricing rules are most typically applied to multinational corporations — those that operate in more than one country — as well as to companies that have subsidiaries in other countries. When these companies are engaged in international transactions, such as transferring money from one country to another, the transfer pricing rules must be applied. The rules require the company to use an acceptable method to determine the price of the goods, services, or money being transferred. The accepted method must ensure that the transaction is priced at fair market value so that it does not create an unfair tax advantage for the company. In California, the Franchise Tax Board is responsible for applying transfer pricing rules to multinational companies operating in the state. The Franchise Tax Board will review the transfer pricing of a company and decide if it is in line with applicable transfer pricing rules. If the company is found to be out of line with the rules, it may be asked to pay additional taxes.

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How do governments apply transfer pricing rules?

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