Transfer pricing comes into equation when the transacting companies fall under the same parent companies. When the decision making process is decentralized the decision to buy from their affiliated unit depends on the individual units since they are responsible for their profits, return on investments, financials etc. This transfer pricing affects their cost.
In the centralized decision making process however the prices are kept close to the market prices such that neither the buying or the selling unit faces a loss. The transfer pricing is usually done for tax evasion by MNC’s by under accounting of profits .
This is also beneficial for the domestic companies which are importing for under accounting their imports and paying less customs.
It helps in shifting their profits from a high tax regime to a low tax destination