Summary

There is certainly much to consider when it comes to determining transfer prices. What’s more, it does sound rather complicated and the product of many different calculations. Fortunately, thanks to the advancements in technology, it is not as difficult as it sounds. The hard part is designing a transfer pricing model best suited to your organization. Once completed, you will then need to know what data are required to properly implement the model. If you look, I’m sure you’ll find that much of the input data are readily available in your organization but not in one place. Getting it there is the first task we need to set ourselves if we want to have a transparent and verifiable transfer pricing system. The next task is to actually build the model we have designed for ourselves. For this part of the process, I’ll point the way a little in the next chapter by creating an example based on a hypothetical set of circumstances. Finally, we need to translate our model into bits and bytes so that the laborious number crunching is carried out speedily, efficiently, and effectively by a computer.

Obviously, the complexity of the transfer pricing model will depend not only on the size of our organization but also on the number of intra-family transactions and interventions that require the establishment of a transfer price. That said, why limit application of the model developed for transfer pricing just to those intra-family activities? Why not treat it as a pricing model more generally and use it to set prices in those situations where you are not driven by market forces? Finally, even for those sales where market conditions determine your selling price, why not use it as a management tool to evaluate whether you really should be selling those products or services to that customer at those prices?