Transfer pricing requires you to pay market-based rates for services actually rendered by foreign related companies. This generally means the foreign company's costs in performing the service plus a profit percentage.

The percentage is determined based on a "Transfer Pricing Study" of related service companies in the foreign jurisdiction (or region, depending on the industry).

Tax authorities are very quick to challenge transfer pricing arrangements, especially those arrangements lacking documentation of how the percentage was selected. (The agreement will do nothing to help you in this regard. The % is what matters in proving that the relationship could have been formed between unrelated companies.) If the TP arrangement is disregarded, the money paid to the foreign company will be recharacterized. The danger is that the income will be treated as passive dividend income, rather than as "active" income. The distinction between active and passive can affect applicable tax rates, offsets, and other tax consequences.

Many accounting firms and even some law firms will provide transfer pricing studies for relatively low cost, but expect to pay low-to-mid 5 figures.