Transfer pricing refers to the mechanism by which cross-border, intra-firm transactions are priced. It occurs, for example, where a locally-incorporated mining company operating in a host country procures goods or services from another company in the same multinational group.
Transfer pricing per se is not illegal. What is illegal, or abusive, is where the intra-company provision of goods or services is not conducted at a fair (or market price) value, and is thereby used as a means for a company to lower its tax burden in the host state.
For more information on transfer pricing see the Tax Justice Network on transfer pricing and the United Nations Practical Manual on Transfer Pricing.