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  • Writer's pictureKatrina Nacci, CPA

Debrief on Transfer Pricing

If you are an international company with subsidiaries in multiple countries, I am sure you are haunted by the term "transfer pricing". I hope that anyone with common costs that are recharging these costs (like admin, CFO, legal, etc.) are already aware of this concept!


I am not a transfer pricing expert, that tends more towards tax advisory, but I had a client call recently focused on this topic and how to optimize his calculations and records to ensure compliance. I thought I would pass along some thoughts on this topic, in case it helps anyone else


👉 TAKE INVENTORY OF YOUR JURISDICTIONS: each country has it's own requirements related to intercompany recharges. Many countries follow the OECD guidance here, but the US especially being subject to IRS regulations can be more onerous.

👉 DETERMINE WHICH COSTS BENEFIT OTHER ENTITIES and be prepared to defend it. You can only recharge costs that are actually serving the entities charged

👉 EVALUATE IF COSTS ARE LOW OR HIGH VALUE: are the costs recharged supportive in nature or providing some economically significant/valuable activities? This will determine if you need to perform a full transfer pricing exercise to determine arms length.

👉 BACK-UP YOUR MARK UP: Per OECD guidance, low value services can use a blanket 5% markup (avoiding the cost associated with a full exercise). If your costs don't fall into this category, or you are using a different %, overarm yourself with documentation to support this

👉 DOCUMENT, DOCUMENT, DOCUMENT: in the case of a tax audit, be prepared to show how you calculated the total costs to be recharged and by what allocation keys you recharged those costs (ie turnover, headcount, etc.)

💡 HELP YOUR WORKING CAPITAL: the more frequently you can invoice your intercompany costs, the better your liquidity of the cost center will be. This will normally necessitate use of budgeted/forecasted numbers, as opposed to invoicing based on actuals (as this slows down the process as well). Make sure you do an annual true-up to compare actual FY costs versus those invoiced-to-date!


Anything else I am missing from consideration? I hope this helps!

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