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[Music] today we are going to talk about inter-company transactions and their role in tax planning imagine you are the manager of a company with multiple Affiliates and you want to buy a product manufactured by a foreign affiliate now you wonder how to determine the appropriate price for this inter-company transaction the price of a third-party transaction is set in a contract similarly the price of an inter-company transaction between Affiliates is set in a contract known as an inter-company agreement the price of an intercompany transaction is called a transfer price when your company buys a product or service from a foreign affiliate your company pays a transfer price to that affiliate this transfer price reduces the taxable profit of your company and simultaneously increases the taxable profit of the foreign affiliate as a result transfer pricing can be used for tax planning especially when there is a large difference between the tax rates of the two countries if your companys tax