Transfer Mispricing

[Flying Purple People Eater]

Alright, so I've been reading about the economies of several African countries (plus Mexico) and was hit in the face with this nasty thing. Apparently it's an extremely common form of third-party trading responsible for a lot of Africa's commodity produce being obtained by capitalists at extremely low price (and effectively is one of the main culprits in the modern engorgement of the wealth ratio between first and third world countries.

Could someone fill me in on how it works, exactly? I was going through something about NAFTA which referenced it, and there was something about 'Tax havens' like those little city-states scattered around Europe (Monaco, Luxembourg, etc.) but the amount of mathematics involved in the papers (logarithms everywhere) was overwhelming to say the least.

[Die Neue Zeit]

That's transfer pricing, not transfer mispricing. The basic premise is that multinational corporations will have a business unit "sell" products to another of its business units for an optimal price that considers the tax laws in both jurisdictions in the maximization of gross and operating profits.