Certified in Logistics, Transportation and Distribution (CLTD) 2026 – 400 Free Practice Questions to Pass the Exam

Transfer pricing serves as a method for businesses, particularly multinational corporations, to establish prices for transactions between their various subsidiaries or divisions across different countries. The primary purpose is to allocate income and expenses within the organization, especially for divisions located in different tax jurisdictions.

Option B is correct because one of the key motivations for implementing transfer pricing is to optimize tax liabilities by shifting profits to low-tax jurisdictions. This practice allows companies to reduce their overall tax burden by pricing their internal transactions in a way that increases reported income in lower-tax regions while minimizing it in higher-tax regions.

Understanding this mechanism is crucial for logistics, transportation, and distribution experts, as transfer pricing affects the financial dynamics and strategic operational decisions within global supply chains. It also plays a significant role in compliance with international tax regulations and can influence the pricing strategies of products and services offered by the organization.

Other choices do not accurately represent the purpose of transfer pricing. Setting prices for goods sold locally, determining final retail prices for consumers, and calculating shipping expenses address different aspects of business operations but do not encapsulate the specific function and strategic importance of transfer pricing in managing corporate tax responsibilities and financial performance across borders.