The transfer pricing issue, a process that cuts across the organization

Baptiste Beauchamps, Senior Consultant & Jean-Luc Faure, VISEO Finance Consulting Director, sign a forum on the challenges that transfer pricing represents for Groups.

Whether it is for central and shared services, fees, seconded staff, or re-invoicing, whether for one-off or recurring operations, there is no national or international group that is not confronted with the issue of transfer pricing.

All layers of the organization are directly or indirectly impacted by the management of intra-Group flows:

1. General Management

- Transfer pricing reflects the general management's strategic intentions to preserve or not certain activities (retained internally rather than outsourced) and to encourage centre managers to adopt a behaviour aligned with this strategy, from a global to a local level

- Transfer pricing is used to justify and "establish" organizational choices (Holding, Platform, Hubs, Shared Service Centres, etc.)

2. Management Control Department

- When determining transfer prices, the difficulty is to assess the value of the transaction between the supplier (or service provider) and the customer entity, while respecting the principle of autonomy: the determination of the transfer price must not distort the assessment of the performance of these two entities.

3. Tax Department

- The rules imposed by local tax administrations can vary widely from one country to another. The justification of the amounts re-invoiced for intra-Group services (calculation methods, cost bases, mark-up applied) may even go back up to 10 years in some countries

4.Accounting and Statutory Consolidation Department

- Accounting departments are at the end of the chain for invoicing these services but are often confronted with large volumes of services and heterogeneous invoicing processes (with or without the use of an order, etc.)

- The statutory consolidation department must reconcile and restate all intra-Group buy/sell transactions in its monthly closing work.

5. Information Systems Department

- The main difficulties encountered are:

•     Communicate distinct tools, often positioned on different application platforms, and with referentials that are not always harmonised (account plans, service catalogues, VAT rates, etc.)
•     Implement and historize models allowing the calculation of full costs of re-invoiced services, in adequacy with the construction / budget simulation

6. Treasury Department

- The consideration of exchange rate hedging policies is also directly affected by the ability of an international Group to build its intra-Group budget and thus identify its internal currency needs.

This intra-Group subject is therefore complex and strategic for all national and international Groups, and must therefore be jointly managed by all departments with strong sponsorship.