Plain English
This is the concrete number on the intercompany invoice — the euros, dollars or units per widget that one group company charges another. 'Transfer pricing' is the discipline; 'transfer price' is the output of that discipline for a single transaction. It can be set in advance as a policy rate, or trued up after the fact once results are known.
Technical definition
The consideration charged in a controlled transaction between associated enterprises, which must fall within an arm's length range determined by application of the most appropriate transfer pricing method to be consistent with Article 9 of the OECD Model Tax Convention.
Why it matters
It is the number tax authorities actually test. A sound policy or benchmarking study is only as good as the price that ends up booked, invoiced, and reflected in each entity's statutory accounts.
How it works in practice
- 01A policy sets the intended pricing mechanism (e.g. cost plus 6%, or a fixed royalty rate).
- 02The transfer price is applied transaction by transaction or period by period.
- 03Actual results are monitored against the target margin or range.
- 04Deviations are corrected, often via a year-end adjustment.
- 05The final booked price is what auditors and tax authorities examine.
Worked example
Royalty transfer price on licensed technology
A Swiss principal licenses patented technology to its Korean manufacturing subsidiary. The agreed transfer price is a 4% royalty on net sales, set based on comparable third-party licensing agreements in the same industry. In a year with Korean net sales of $50m, the transfer price generates a $2m royalty payment from Korea to Switzerland. If comparable royalty rates in that industry range from 2% to 5%, a 4% transfer price sits comfortably within the arm's length range and is far easier to defend on audit than a rate set outside it.
Common mistakes
- Setting the transfer price once and never revisiting it against updated benchmarks.
- Confusing the transfer price (a rate or amount) with the transfer pricing method (the methodology used to derive it).
- Booking a different price than the one documented in the intercompany agreement.
Audit red flags
- Transfer prices that never change despite material shifts in market conditions.
- Invoiced prices that do not match the intercompany agreement on file.
- Large, unexplained true-ups at year end.
Documentation & data
Documents to hold
- Intercompany agreement specifying the pricing mechanism.
- Invoices and ledger entries evidencing the price actually applied.
- Benchmarking analysis supporting the rate or margin.
Data you need
- Transaction-level invoice and volume data.
- The applicable benchmarked range or comparable rate.
- Actual versus budgeted margin by entity.
Who owns this internally: Finance/controllership books it; tax sets and monitors it against policy.
Jurisdiction notes
- United States
- Section 482 regulations focus heavily on whether the price actually charged, not just the policy, reflects arm's length results.
- European Union
- Many member states expect the booked intercompany price to reconcile precisely with the local file narrative.
Notes by role
CFOs & finance leaders
The transfer price flows straight into statutory profit by entity — it is one of the few tax concepts finance touches every single month through the ledger.
Advisors & consultants
Distinguish clearly for clients between the policy (rate) and the price (booked amount) — audits are won or lost on the latter.
Frequently asked
- Can a transfer price be a range rather than a single figure?
- The underlying policy is often expressed as a range or target, but the price actually invoiced and booked is a single figure for each transaction.
- How often should transfer prices be updated?
- Best practice is at least annually, or whenever there is a material change in market conditions, functions or risks.
Sources & status
- Primary source
OECD Transfer Pricing Guidelines, Chapter II
OECD, 2022
- Our interpretation
Distinguishing policy from booked price
This glossary, 2026
Reference material only, not advice on a specific fact pattern. Reviewed 2026-06-30.
Careers
How this shows up in the job
Being able to trace a transfer price from policy document through to general ledger entry is a practical skill that separates strong candidates from theoretical ones.
Careers in transfer pricing