Introduction

A 'transfer price' can be defined as the price used for internal sales of goods and services between the divisions of a business enterprise. When some of the divisions are located in different countries this type of firm is called a multinational enterprise (MNE). The intra-firm sales which take place between the branches of such an MNE create the need for internal prices to value the exchange of these divisions. Transfer prices are necessary to manage efficiently the internal markets of the MNE, and keep track of the performance of the divisions.