This paper examines the issue of transfer pricing with particular refe
rence to Japanese multinational companies against the background of re
cent press reports alleging the misuse of this pricing mechanism to lo
cate artificially group profits in countries where a tax advantage may
be obtained. The chief allegation seems to be that companies set out
deliberately to engineer a pricing structure which results in a sales/
purchase price which is artificially low/high for goods which, typical
ly, are traded across one or more national boundaries. This is in prac
tice difficult to prove, and tax authorities normally seek to make adj
ustments based on attempts to establish a 'fair' or 'arm's length' pri
ce for goods for which an independent market seldom exists. The assump
tion generally made is that multinationals operate similarly in respec
t of transfer pricing, namely to the disadvantage of host countries in
which they operate. It is the contention of this paper that this blan
ket assumption does not hold true, especially in the instance of Japan
ese multinationals, and it is argued that this can be demonstrated cle
arly if the pricing structures operated by a typical Japanese firm are
examined in the light of the differing costing principles obtaining a
nd the different business culture.