Plain English
You set prices at the start of the year using a forecast. Reality differs. A true-up corrects the difference so the tested entity lands where the policy says it should — ideally before the books close, because retrospective adjustments create customs and VAT problems.
Technical definition
A compensating adjustment in which a taxpayer reports a transfer price for tax purposes that is, in the taxpayer's opinion, an arm's length price for a controlled transaction, even though this price differs from the amount actually charged between the associated enterprises.
Why it matters
It is the operational mechanism that makes a transfer pricing policy real, and the point where tax, customs, VAT and statutory reporting collide.
How it works in practice
- 01Monitor tested party results quarterly against the target.
- 02Forecast the full-year position by month ten or eleven.
- 03Book the adjustment through intercompany invoices or credit notes before year end where possible.
- 04Assess customs valuation and VAT consequences of the adjustment.
- 05Document the calculation and the policy basis.
Worked example
Customs interaction
A downward adjustment reducing the price of goods already imported may entitle the importer to a customs duty refund, but only if a valid mechanism and prior disclosure exist in that jurisdiction. Made after the fact with no framework, the same adjustment can create a duty underpayment on the upward side and no refund on the downward side — an asymmetric loss.
Common mistakes
- Booking a single lump-sum adjustment with no transaction-level allocation.
- Ignoring the customs and VAT consequences entirely.
- Making the adjustment after statutory accounts are signed.
Audit red flags
- Adjustments always in the same direction, suggesting a mispriced policy.
- Adjustment amounts exceeding the entity's gross margin.
Documentation & data
Documents to hold
- Calculation file linking policy target to booked amount.
- Credit notes or invoices with transaction references.
- Customs and VAT assessment note.
Data you need
- Monthly segmented results.
- Import values by tariff line where goods are involved.
Who owns this internally: Group tax calculates; controllership books; customs reviews.
Jurisdiction notes
- European Union
- Customs treatment of transfer pricing adjustments varies by member state; some require a pre-agreed adjustment mechanism to allow refunds.
- OECD
- Chapter IV addresses compensating adjustments and notes that jurisdictions differ in whether they accept them.
Notes by role
CFOs & finance leaders
True-ups are cash. Put them in the forecast, and agree with local CFOs early — they affect local bonus metrics.
Frequently asked
- Are downward adjustments always accepted?
- No. Some jurisdictions restrict adjustments that reduce local taxable income, particularly if made after year end.
Sources & status
- Primary source
OECD Transfer Pricing Guidelines, Chapter IV, Section C.3
OECD, 2022
- Our interpretation
Practical customs sequencing guidance
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
Operational transfer pricing roles are growing fast. Systems and process skills matter as much as technical ones here.
Careers in transfer pricing