Fund positioning

Transfer pricing is one of the techniques used by multinational firms to transfer funds from one part of the total business to another.This procedure is used particularly in conjunction with short-term investment and financing decisions, where it is normally the case that a business firm checks the availability of internal funds before resorting to external financing.

A multinational firm can utilize internal financing by resorting to funds available at its subsidiaries.

If the firm wants to remove funds from one of its foreign subsidiaries, it can charge this subsidiary a higher price for the products it provides the subsidiary with as part of intra-firm trade.If a subsidiary is short of funds, it will be charged a lower transfer price.Transfer pricing can also be used to channel profit into a particular subsidiary to raise its credit rating and boost its ability to borrow funds.