Transfer Pricing Question

What is transfer pricing?

Transfer pricing refers to the rules and methods for pricing transactions between enterprises under
common ownership or control (ie. Subsidiaries of large multinationals). It largely applies to the pricing of
cross-border transactions between related entities, a good example would be the pricing of services
provided by a subsidiary in the US to its parent company in Canada. A more complex example would be
the pricing of a intercompany loan between a parent and a subsidiary.

Why do companies look at transfer pricing?

Because of the potential for cross-border controlled transactions to distort taxable income, tax
authorities in many countries can adjust intragroup transfer prices that differ from what would have
been charged by unrelated enterprises dealing at arm’s length. For example, if a parent company
provides an intercompany loan to a subsidiary in another country, the interest expense associated with
the loan can be deducted as a taxable expense.

For companies to comply with transfer pricing regulations, they must adequately document/support the
pricing of these cross-border intercompany transactions. Failure to do so may result in penalties and
incorrect pricing may lead to adjustments by tax authorities which can impact the amount of taxes
owed.Further transfer pricing planning can result in minimizing the taxes paid by entities by structuring
transactions to result in a favourable tax outcome by decreasing revenue in a high tax jurisdiction and
increasing it in a low tax jurisdiction.

What would someone who works in transfer pricing at a professional services firm look at in helping
structure transfer pricing solutions for a client?

Transfer pricing staff would look at the financials of the entities involved in the transaction, conduct
interviews with key staff to understand the value provided by the transaction, research applicable
transfer pricing regulation, and they would run a comparables benchmarking to support the pricing used
by the client.

What would a bank use transfer pricing for and how does that affect their financials?Multinational
Banks are significantly impacted by transfer pricing as they tend to have a large portion of their funding
through various intercompany structures. Hence they require significant planning and compliance work
to support their business.The pricing used impacts the net interest income for the various subsidiaries of
the bank and will also affect the amount of taxes paid in the local jurisdiction. Hence a strong transfer
pricing policy with adequate compliance to transfer pricing rules in the countries where the bank
operates is extremely vital.
What do transfer pricing divisions look for on terms of hiring from degrees to designations is GPA
important?Consulting/audit firms generally look for a diverse workforce with preference for Economics,
Finance and Accounting students for new hires. A Master’s degree is preferable – Economics, Finance
and Tax majors being the most preferred. A high GPA tends to be very important for entry level roles in
the Big 4 audit firms. Banks and other industries generally only hire transfer pricing staff with 3+ years of
transfer pricing experience in audit firms.

What are some day to day tasks in a transfer pricing division in a bank and at a consultancy?

Day to day tasks for a transfer pricing professional could include preparing compliance documentation,
conducting comparable benchmarking to support pricing, financial analysis and providing transfer
pricing advice to clients.

What is an example of a transfer pricing transaction you would work on?

A good example is intercompany loan pricing. This transaction requires a more quantitative analysis,
including Bloomberg and advanced Excel skills. A finance background is extremely useful for working on
these transactions.

A more straightforward example is the pricing of services between two affiliated entities. Here a simple
third party comparable benchmarking can be used to support the price charged by one related entity to
another.

How are laws and regulations changing and what are the ramifications?

The past two years have seen significant changes to the transfer pricing regulatory landscape. The OECD
have come out with the Base Erosion and Profit Shifting plan to counter tax base erosion by large
multinationals like Apple who use low tax jurisdictions to shift profits and reduce corporate taxes. These
regulatory changes have increased the compliance burden on multinational corporations and has
directly resulted is more transfer pricing projects for consulting/audit firms. This has also resulted in
increased hiring of transfer pricing staff both in the industry and within consulting/audit firms.

What is the career trajectory and salary path?

Entry level roles in transfer pricing are almost exclusively in consulting/audit firms like Deloitte, EY, PwC
and KPMG. The starting salary ranges from 50 to 60K for an analyst and depends on background,
location etc. Most entry-roles are eligible for overtime pay, which can add another 10-15% to your
salary. A manager salary ranges from 80 to 110K plus bonus.

Career growth in consulting/audit firms can be fairly quick in the early stages, however progression to a
senior Manager and then Partner can be more difficult. An alternate career path is moving to an
industry transfer pricing role after 3-4 years of experience. However career growth in industry roles tend
to be fairly slow in comparison to consulting/audit firms. Alternatively one can continue within the
consulting/audit firms and aim to become an equity partner which can be a lucrative position.

If people leave transfer pricing what are popular divisions to lateral to or careers?Transfer pricing is a
fairly niche industry and after extensive experience in this field a lateral career move can be difficult.
However based on one’s background and area of specialization, a lateral move to a corporate finance
role is common especially in the early to mid-career phase.

Alternatively, if one has a tax/accounting background a move to corporate or an international tax role is
also fairly common.

What are the hours like?

A entry level role in a major city like Toronto would range between 50-60 hours on average per week.
During busy season this could go up to 70-80 hours. In smaller cities like Vancouver and Calgary, hours
rarely exceed 50-60. Similar hours are expected for Managers and Senior Analysts.

What divisions does transfer pricing work closely with?

In consulting/audit firms, transfer pricing works closely with other tax groups, M&A teams and the
corporate finance team.

Within the banking industry, transfer pricing staff work extensively with different lines of business to
provide advisory and compliance services. In addition, they also work closely with senior corporate staff,
treasury and international tax staff to assist with planning and tax risk mitigation strategies.