Transfer misspricing

Fraudulent transfer pricing, sometimes called transfer mispricing, also known as transfer pricing manipulation,[17] refers to trade between related parties at prices meant to manipulate markets or to deceive tax authorities. For example, if company A, a food grower in Africa, processes its produce through three subsidiaries: X (in Africa), Y (in a tax haven, usually offshore financial centers) and Z (in the United States). Now, Company X sells its product to Company Y at an artificially low price, resulting in a low profit and a low tax for Company X based in Africa. Company Y then sells the product to Company Z at an artificially high price, almost as high as the retail price at which Company Z would sell the final product in the U.S.. Company Z, as a result, would report a low profit and, therefore, a low tax. About 60% of capital flight from Africa is from improper transfer pricing.[18] Such capital flight from the developing world is estimated at ten times the size of aid it receives and twice the debt service it pays. The African Union reports estimates that about 30% of Sub-Saharan Africa's GDP has been moved to tax havens.[21] Solutions include corporate “country-by-country reporting” where corporations disclose activities in each country and thereby prohibit the use of tax havens where real economic activity occurs.