Transfer Pricing

Transfer Pricing is the setting and documentation of the prices at which services are charged between affiliated companies of a group. For IT services, this concerns, for example, centrally provided services that national subsidiaries use and pay for across borders.

The tax benchmark is the arm's length principle under the OECD Transfer Pricing Guidelines: intercompany prices must correspond to what independent third parties would agree. For IT services, the cost-based method is common: an appropriate mark-up is added to transparently derived unit costs, for example €100 unit costs plus 7 percent equals an intercompany price of €107. Cost derivation and pricing must be documented, usually in a Local File and Master File. Implementation in the cost model is described on the IT Transfer Pricing page.

Transfer pricing must be distinguished from internal charging within a single legal entity, which is not subject to tax price documentation. In both cases, a robustly derived charging rate from the Rate Card forms the basis.