Transfer Pricing
Also: Transfer Price, Intercompany Pricing, Prix de transfert, Verrechnungspreise, Konzernverrechnungspreise, Arm's Length Pricing
The prices charged when units of the same company trade goods, services or IP across borders, set to satisfy tax authorities and reflect market value.
What It Is
Transfer pricing sets the price one part of a company charges another part for goods, services, licenses or financing when the two sit in different countries or legal entities. The core principle is the arm's length standard: an internal transaction should be priced as if the two parties were unrelated companies negotiating on the open market. A German manufacturing subsidiary selling components to its US sales arm, or a brand licensing its trademark to a foreign division, both create a transfer price that tax authorities can review.
Why it matters
Transfer pricing decides where profit lands, and therefore where tax is paid. Set the price too high or too low and you shift taxable income across borders, which triggers audits, back taxes and penalties in the jurisdictions that feel shortchanged. For a CFO this is one of the largest tax and compliance exposures in a multinational. For a CMO or CDO it shows up quietly: when your division licenses a brand, shares customer data across borders, or buys AI platform access from a group entity, someone has to defend that internal price to regulators. Documentation requirements under OECD guidelines mean the reasoning must be written down and defensible, not improvised at year end.
How it works
Companies benchmark internal prices against comparable market transactions using accepted methods (comparable uncontrolled price, cost plus, resale minus, transactional net margin). The chosen method must be documented in a master file and local files, showing the functions performed, assets used and risks borne by each entity. In practice a leader meets transfer pricing when launching a new cross-border service: finance and tax teams model what an independent provider would charge, agree a markup, and record it. Advance pricing agreements can be negotiated with tax authorities to lock in a method and reduce dispute risk. Intangibles (brand, algorithms, data) are the hardest to price because true market comparables rarely exist, which is exactly where marketing and data leaders get pulled into tax conversations.