(law/customs/taxation) (a) The setting of prices for products and services between units, subsidiaries, divisions or affiliates of the same organization. For example, a manufacturing company may establish special (lower) prices for products sold to a wholly-owned foreign subsidiary than to a non-owned foreign distributor. (b) The practice of adjusting prices for products and services within units, subsidiaries, divisions or affiliates of the same organization to take advantage of different tax rates in different countries. For example, transfers (sales) to an affiliate in a high-tax country for a high price and transfers to an affiliate in a low-tax country for a low price. The result is to transfer the organization’s profits to low-tax countries for overall tax savings.
In 2010 it was reported that Google uses techniques called the “Double Irish” and “Dutch Sandwich” to reduce its corporate income tax to 2.4%, by funnelling its corporate income through Ireland and from there to a shell in the Netherlands where it can be transferred to Bermuda, which has no corporate income tax See transfer pricing.