Transfer Pricing


Multinational companies face a unique set of opportunities and incentives to set transaction prices between related entities. Unlike transactions between unrelated parties, the prices of such “intercompany” transactions can potentially be manipulated by the parent company to shift profits to jurisdictions with lower tax rates. These companies must satisfy tax authorities that they are not evading taxes through the use of intercompany or transfer prices. To do this, they must show tax authorities that transfer prices resemble those that would prevail between unrelated parties in competitive markets. This so-called “arm’s-length standard” is the foundation for transfer-pricing regulations around the world.

As the arm’s-length standard implies, analysts typically look to similar transactions between unrelated parties as a benchmark for assessing intercompany transactions. Virtually all of the transfer-pricing methods refer in some way to unrelated transactions as the basis for setting intercompany prices. The characteristics and incentives surrounding such unrelated transactions, as well as the profit derived from them by unrelated parties, provide a starting point for setting transfer prices that satisfy the arm’s-length standard.

Analysis of intercompany transactions and transfer prices requires developing an in-depth understanding of the functions performed and risks assumed by the different related entities. It also demands a detailed review of the markets in which the intercompany transactions take place. This is true whether the product in question is a tangible good, an intangible piece of intellectual property, or an intercompany service.


EI economists are highly qualified to perform the kinds of analyses required to develop and support acceptable transfer prices. With their strong background in microeconomics and industrial organization, EI economists are experts in assessing the kinds of firm and market-specific factors that can affect transaction prices. EI economists have worked in a broad range of industries, and can apply that industry experience and knowledge to transfer-pricing analyses. Moreover, by working closely with clients, EI can develop transfer-pricing strategies that satisfy both corporate objectives and the relevant tax authorities.

EI economists have experience in all aspects of transfer-pricing analysis, from tax planning and developing global tax strategies, to assisting taxpayers under audit, to supporting clients facing litigation in Tax Court or other venues.