This study examines transfer pricing principles and the active factors behind it. The purpose of the study is to investigate the case company’s current transfer pricing and to form principles for its intercompany trade. The objective is to develop principles that help the management of the company in question to achieve the stated goals while maintaining those principles equitable according to the company’s different members.

This thesis is a qualitative, theoretic and descriptive case study. The theoretical part analytically exhibits different transfer pricing methods bringing up the pros and cons of each of them. This is done by reviewing the comprehensive literature whereby the factors surrounding the transfer pricing problem are taken into account.

The empirical part of the study was collected by interviewing the top management of the case-company. Interviews took a semi-structured form. In addition, topic-related conversations were held several times with the case company’s financial manager. Moreover, one visit was made in a cooperative where the case company plays a role as an associate. The visit was based on a presentation about cooperative’s transfer pricing and it was held by their financial manager. Interviews took place during the Spring 2012.

The study shows that transfer pricing is a complex process. It is almost impossible to achieve all desirable goals at the same time. When making transfer pricing principles, one must specifically consider the following factors: 1) nature of the business, 2) nature of the business units, 3) nature of exchangeable goods, 4) availability of different prices and 5) the performance measurement. The study recommends that an adjustable market-based transfer pricing method is used generally when making transactions between profit centres. However, a cost-based transfer pricing rule is recommended for transactions constisting of products which have been under refinement.