When a multinational company sets transfer prices between subsidiaries in different countries, tax authorities generally require that the prices:

Correct answer: B) Follow the arm's-length principle, approximating prices that unrelated parties would agree

Explanation

Tax authorities in most jurisdictions apply the arm's-length principle to intercompany transactions to prevent profit shifting. Companies must document their transfer pricing methods, and deliberately moving profit to low-tax countries through non-arm's-length prices can lead to adjustments and penalties.