Intercompany Pricing

The setting of prices by companies within a group to sell products or services to each other, rather than to external customers. Often inter-company pricing takes place by companies merely passing invoices without the subject matter of the sale actually being transferred to or by the intermediary company.

Tax havens may be used for the purpose of inter-company pricing in a number of ways.

For example, raw materials or goods or components manufactured at a very low cost abroad could be purchased by a company and then sold to a related company in a high tax jurisdiction at high prices which would give the latter company a substantially lower profit than if purchases had been effected directly.

Another example would be a manufacturing company located in a high tax jurisdiction could effect sales to a related company in a tax haven jurisdiction at cost or at prices involving a very small profit margin; the tax haven company could then in turn sell the goods to one or more related marketing companies in high tax jurisdictions at high prices, which would produce a low profit in the hands of the latter company or companies.

A variation would involve selling to unrelated marketing companies at arm's length prices, the primary object of the exercise still being achieved since the manufacturing company would have avoided taxation on the real profits that would otherwise have accrued to it.