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Most systems allow use of transfer pricing multiple methods, where such methods are appropriate and are supported by reliable data, to test related party prices. Among the commonly used methods are comparable uncontrolled prices, cost-plus, resale price or markup, and profitability based methods. Many systems differentiate methods of testing ...
The Fund Transfer Pricing (FTP) measures the contribution by each source of funding to the overall profitability in a financial institution. [1] Funds that go toward lending products are charged to asset-generating businesses whereas funds generated by deposit and other funding products are credited to liability-generating businesses.
The specific functions and principles followed can vary based on the industry. Management accounting principles in banking are specialized but do have some common fundamental concepts used whether the industry is manufacturing-based or service-oriented. For example, transfer pricing is a concept used in manufacturing but is also applied in banking.
The transactional net margin method (TNMM) in transfer pricing compares the net profit margin of a taxpayer arising from a non-arm's length transaction with the net profit margins realized by arm's length parties from similar transactions; and examines the net profit margin relative to an appropriate base such as costs, sales or assets.
The latter (cost accounting) applies financial reporting conventions to inventory valuation, transfer pricing, and the cost of goods and services sold, and it serves the informational requirements of external parties, including investors, creditors, regulators, and tax authorities.
The setting of the amount of related party charges is commonly referred to as transfer pricing. Many jurisdictions have become sensitive to the potential for shifting profits with transfer pricing, and have adopted rules regulating setting or testing of prices or allowance of deductions or inclusion of income for related party transactions.
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