What is the primary purpose of an intercompany pricing policy?

• A. To regulate external market prices
• B. To set terms for transactions between subsidiaries
• C. To establish pricing for third-party clients
• D. To monitor pricing trends in the industry

Answer: (B)

The primary purpose of an intercompany pricing policy is to set terms for transactions between subsidiaries. This policy is crucial for ensuring that the prices charged for goods and services exchanged between different entities within the same corporate group are fair and consistent. By establishing standardized pricing, companies can manage their internal financial processes, comply with tax regulations, and facilitate clear reporting across various business units.

Having a well-defined intercompany pricing policy enables organizations to mitigate disputes that may arise from pricing discrepancies between subsidiaries. It also helps in optimizing resource allocation and promoting transparency in financial transactions, ultimately supporting the overall financial health of the company group. This is particularly important in multinational corporations where regulations and tax laws governing intercompany transactions can be complex.

While pricing regulations in external markets and monitoring industry trends are relevant aspects of overall corporate strategy, they do not specifically address the unique needs of pricing strategies for transactions between the various subsidiaries within the same organization, which is the focus of an intercompany pricing policy.