Final answer:
True. Secretly setting similar prices for products by representatives of two or more companies is illegal and is known as transfer pricing. Transfer pricing involves setting prices for goods or services between related entities to shift profits between tax jurisdictions.
Step-by-step explanation:
True. It is illegal for representatives of two or more companies to secretly set similar prices for their products. This practice is known as transfer pricing. Transfer pricing occurs when a company sets prices for goods or services sold between its subsidiaries or related entities to shift profits between tax jurisdictions. It is considered illegal because it can be used to manipulate profits and avoid taxes.
For example, let's say Company A and Company B are both subsidiaries of a larger parent company. Company A sells a product to Company B at a lower price than it would sell to an independent buyer. By doing this, Company A artificially reduces its profits and shifts them to Company B, which may be located in a jurisdiction with lower taxes. This allows the parent company to reduce its overall tax liability.
To prevent this type of activity, tax authorities have regulations and guidelines in place to ensure that transfer pricing is done at fair market value. This means that companies must set prices for goods or services between related entities as if they were unrelated and dealing at arm's length.