Transfer pricing refers to the method a corporate entity adopts for the setting and adjustment of prices of goods or services or the allocation of resources from one associate of the entity to another associate within that same entity. The setting for the use of transfer pricing is within transnational corporations, or TNCs. Corporate subsidiaries in different countries must adjust prices when one subsidiary transfers goods or services to a subsidiary operating in a different country. 

Transfer pricing is a complex accounting topic with serious tax implications. Because entities set their own prices and record their own internal transactions, prices and pricing formula vary wildly between corporations. Tax authorities face major challenges in the oversight of intra-company transactions. As a result, transfer-pricing is ripe for manipulation and fraud. Subsidiaries can charge significantly more or less than fair market value to optimize the corporate tax rates of different countries. The profit and loss of each subsidiary is calculated separately. 

The basic principle motivating corporations to conduct fraudulent transfer pricing practices is to reduce tax obligations and increase overall profits. The purpose is to create more income in countries with lower corporate tax rates. Transfer pricing is a major focus of international tax professionals. The manipulation of transfer pricing and its effect on tax responsibility results in tax evasion and fraud.

As with many types of financial fraud, the best chance of the fraud being revealed is through the reporting of information by an individual with first-hand knowledge. Individuals with knowledge of potentially fraudulent activity or tax evasion are provided an avenue of reporting this information without fear of retribution. The IRS has established its own whistleblower awards by incorporating a provision into the federal tax code (IRC section 7623(b)). The Tax Relief and Healthcare Act of 2006 resulted in the establishment of the IRS Whistleblower Office. Mirroring the basic provisions in the federal False Claims Act, the IRS Whistleblower Office processes tips of workplace tax issues and any resulting monetary whistleblower awards. If information based on knowledge of tax evasion leads to collection of additional funds from the perpetrator, the whistleblower can receive a portion of that money. The IRS website (www.irs.gov) provides detailed instructions on the reporting of information regarding transfer pricing and other tax-related frauds. Individuals with any information about the existence of tax fraud must complete IRS form3949A, which is the IRS Information Referral form. Informants making claims under the Whistleblower provisions must complete an Application for Original Information under penalty of perjury. If the claim is found to have no merit, if the individual is required by law to disclose the information or if the individual does not meet other specific criteria, a claim cannot be filed. The process of filing a claim with the IRS Whistleblower Office may take several years and must adhere to specific guidelines.