Development of Transfer Pricing Methodology

Project Goal

To develop a set of mechanisms and methods (rules) for determining transfer prices for products or services transferred between internal divisions (profit centers).

The main tasks of transfer pricing are:

• Promoting the achievement of the company’s strategic and tactical goals;
• Improving the management organizational structure;
• Coordinating and optimizing the actions of divisions;
• Constantly strengthening managers’ motivation:
  • The motivation of managers in selling divisions should be aimed at maximum cost reduction;
  • The motivation of managers in buying divisions should be aimed at acquiring products and services within the company and using them effectively.
• Evaluating the performance of individual divisions and their managers;
• Ensuring a high level of autonomy for divisions in making management decisions.

Project Stages:

• Company Familiarization:
  • Strategy;
  • Organizational structure;
  • Business processes;
  • Management reporting;
  • Motivation.
• Development of Transfer Pricing Methodology:
  • Profit centers (divisions);
  • Division reporting (P&L):
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Method for setting transfer prices;
  • Transfer pricing calculation report:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Transfer income and expense calculation report for divisions:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Regulation of transfer pricing processes.
• Compilation of the “Transfer Pricing Methodology” document.

Execution Methodology:

• Drafting an initial list of requested documents from the Customer and analyzing them;
• Compiling a list of questions for the Customer’s respondents and analyzing response results;
• Analyzing the received information;
• Coordinating and approving the developed documents regarding the transfer pricing methodology.

Project Result:

• A formalized transfer pricing methodology corresponding to the goals and objectives of the project;
• A structured list of works and investment volumes for automating the transfer pricing methodology.

Value for the Customer:

• Achieving alignment of goals between divisions and the company as a whole;
• Decentralization of the management system;
• Making management decisions at the level of structural divisions;
• Maximizing the operating profit of divisions;
• Optimized division activities leading to optimized company activities as a whole;
• Evaluation of division performance;
• Strengthening the motivation of division managers.