Transfer Pricing in Treasury

A New Era of Compliance and Strategic Insight

In the world of corporate treasury, a quiet revolution is unfolding. The implementation of the Organisation for Economic Co-operation and Development’s (OECD) 2015 transfer pricing guidance – anchored in its ambitious BEPS (Base Erosion and Profit Shifting) project – is transforming how multinational enterprises (MNEs) approach the pricing of financial transactions within their own groups.

For treasury departments, this means new rules, new risks, and crucially, new opportunities to lead on financial transparency and regulatory compliance.

The 2015 guidance has been hailed by OCDE as a game-changer expected to alter the transfer pricing outcomes in many situations and require multinational enterprises and treasurers to undertake additional analysis and documentation.

But how this guidance will impact our companies, and treasury more specifically, is a question many treasurers haven’t yet answered.

For corporate treasurers, grappling with this question means re-examining everything from day-to-day cash management to the strategic architecture of group financing.

What is transfer pricing and why does it matter?

Transfer pricing is the framework governing the pricing of goods, services, and intangible assets exchanged between related entities in a multinational group:  subsidiaries, branches, or affiliates.

In treasury, transfer pricing covers the very heart of capital flows: intercompany loans, cash pooling, guarantees, and the policies around group funding. At its core lies the arm’s-length principle: all intra-group transactions must be priced as if they occurred between independent, third-party entities bargaining in open market conditions. This principle, designed to ensure fair taxation and prevent base erosion, now demands that treasurers justify and document the rationale behind each financial flow.

The rising tide of documentation and benchmarking

PwC’s 2023 Transfer Pricing Survey spotlights the sheer scale of these changes:

• Between 70 and 80% of major European multinationals now use robust external databases – from sources including Bloomberg, Refinitiv, and Loan Connector – to validate their transfer pricing policies and support audit trails.
• Between 30 and 40% of treasury transfer pricing audit challenges centre on how cash pool leaders are compensated, exposing ongoing industry debate about fair remuneration for central liquidity management.
• Frequent stumbling blocks include lacking market comparable, flawed benefit tests, and breaches of thin capitalisation rules.

The message is clear: the days of informal, lightly documented treasury practices are over.

Navigating BEPS and the OECD lens

A pivotal driver is BEPS Action 4, which takes direct aim at the deductibility of intra-group interest expenses. Under these new rules, MNEs must:

• Price intercompany loans according to transparent external benchmarks. For example, IBOR rates plus arm’s-length margins, or corporate bond yield curves.
• Undertake thorough credit risk assessments, modelling the group entity’s real-world borrowing capacity.
• Take into account all key parameters: loan currency, repayment period, collateral, and – crucially – local variations in tax law.

The consequences for missing the mark are non-trivial: tax authorities, equipped with greater data-sharing and analytics, can now reclassify group loans, deny deductions, or levy financial penalties with new efficiency.

Best practices: centralisation and consistency

How are leading treasurers responding? Industry consensus increasingly points to the central service centre (CSC) model for treasury, a structure within which a dedicated central team manages group liquidity, administers intercompany loans, and implements a uniform, defensible pricing policy.

Standard-setters recommend four key practices:

1. Clear documentation of terms and agreements for every internal transaction.
2. Benchmarking of rates against current, credible market sources.
3. Annual reviews to capture market changes and regulatory developments.
4. Quantifiable benefit testing to ensure all parties demonstrably gain from central treasury functions.

By embedding these elements, treasury teams not only minimise audit risk but also help institutionalise financial discipline and transparency across the business.

The view from the front line

For the modern treasurer, transfer pricing is not just a tax-preparation hurdle. It’s a core part of risk management and compliance strategy. Intra-group funding flows are among the largest and most scrutinised transactions for any multinational – whether it’s a simple intercompany loan, a complex cash pooling arrangement, or the pricing of guarantees.

Robust, evidence-backed methodologies are essential not just to prevent audit issues but to ensure enterprise-wide clarity and confidence. The advice is echoed throughout the industry: successful treasury leaders are those who collaborate closely with tax and legal teams, bringing their expertise together to build systems that can withstand external scrutiny and drive better internal outcomes.

Ongoing challenges

Despite notable progress, obstacles remain:

• Sourcing market comparable for unique or complex intra-group funding models can be time-consuming.
• Determining the fair allocation of cash pool benefits – especially in multicurrency or multijurisdictional structures – continues to be a contentious audit area.
• Ensuring policy consistency and regulatory alignment across all operating regions is a perennial challenge for globally active groups.

For many, these realities translate into an increasing reliance on external advisers, sophisticated benchmarking databases, and agile documentation tools.

The future: integration, automation, and strategic impact

Looking ahead, three trends are set to reshape treasury’s approach to transfer pricing:

• Increasing regulatory scrutiny:  Enhanced data sharing between authorities and the digitisation of cross-border reporting mean inconsistencies are more easily uncovered.
• Greater analytical sophistication:  The integration of AI, Big Data, and advanced analytics is raising the bar for benchmarking and documentation.
• Deeper integration with risk management:  Transfer pricing policy is moving closer to the core of treasury’s risk and liquidity management framework, reinforcing its importance as both a compliance requirement and a driver of business value.

Five keys for treasury success

Every treasury team should keep these points top of mind:

• Understand the rules.  Stay informed about OECD guidance and national implementation, especially in relation to BEPS Action 4.
• Centralise expertise. Build, resource, and empower a central treasury function to lead policy and compliance.
• Benchmark with rigour. Use independent, reputable data for all rate-setting and periodically refresh your analysis.
• Document everything. Comprehensive, audit-ready records are non-negotiable.
• Foster collaboration.  Treasury, tax, and legal departments must be in lockstep on all transfer pricing matters.

Who dares wins

Transfer pricing in treasury is no longer a formality for tax compliance, it is a powerful lever for reducing risk, optimising group liquidity, and enhancing corporate reputation.

As regulatory scrutiny intensifies, those who invest in robust transfer pricing strategies today will protect their organisations from costly disputes tomorrow and unlock new levels of operational efficiency and strategic influence.

The future belongs to treasurers who embrace transfer pricing not merely as a mandate, but as an opportunity to lead the way in financial governance.