The Wikipedia article is pretty good: <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Transfer_pricing#Profit_allocation" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Transfer_pricing#Profit_alloca...</a>. Basically, it has to do with the prices charged for goods and services between related entities. Generally, laws require that these prices be the same as they would be if the companies were interacting in arm&#x27;s-length market transactions.<p>Consider, for example, a tax dodge Samsung is alleged to have engaged in. Samsung Electronics makes products in South Korea, then sell them <i>at cost</i> to Samsung Distribution, which is an affiliated company in a low-tax jurisdiction. Samsung Distribution then exports the products at market price to Best Buy, etc. Samsung Electronics books little or no profits in South Korea--all the profits are booked by Samsung Distribution in the low-tax jurisdiction.<p>There is also a corporate-entity angle to this. Operating as a separate corporation has benefits: if one goes bankrupt, its creditors cannot reach the assets of a related entity. But if transactions between related entities are not arm&#x27;s-length, it&#x27;s easy to shift money around between them and abuse the protections of separate corporate forms by, e.g., leaving riskier lines of business undercapitalized in case of a tort judgment.