Given the increasing importance of intercompany funding resulting from treasurers’ focus on making better use of group-wide liquidity, this article highlights some of the hurdles that multinational groups must negotiate when designing and implementing tax transfer pricing policies.
Transfer pricing for treasury transactions covers a wide range of activities and issues. It would be impossible to cover all of them in a relatively short article. Instead, I have collated five common statements treasurers make when I talk to them about the subject, and these responses indicate that there is a transfer pricing risk.
“Group tax is responsible for transfer pricing. In treasury we just set and apply the policies.”
The risk: Without clear communication and a good relationship between treasury and group tax departments, it is likely that misunderstandings will arise and this could lead to wasted time or, at worst, the risk of fines/penalties. Best practice is that treasury/tax work hand in hand on transfer pricing matters with treasury bringing its expertise on pricing, market conditions and treasury systems and group tax bringing its expertise on tax transfer pricing documentation, dealing with tax authorities and evidence requirements.
This is how it should work and it is how it normally works. Nonetheless there is a substantial minority of groups where treasury and group tax departments operate in silos.