The 3 Fundamental Treasury Concepts: Transfer Pricing

14-12-2022 | Vasu Reddy | treasuryXL | LinkedIn |

The 3 fundamental treasury concepts being discussed currently include Working Capital Management, Bank Relationships and Treasury Transfer Pricing which are pivotal pillars for effectively and efficiently optimizing cash, liquidity,  funding and managing risk for any Treasury function to support the achievement of the organizations business objectives and strategy. In the second blog of a series of 3, Vasu Reddy explains the best practices and benefits of Treasury Transfer Pricing.

Intercollegiate loans and intercollegiate services MUST be billed and charged at a market rate – i.e. as you would bill/pay a third party to avoid tax risk and margin loss.

How to price loans and how is service charge billing done?

  • The price of a loan can be obtained from partner banks, financial institutions and the market, using the central bank rate of the borrowing LE as a benchmark and taking into account the borrowing LE’s creditworthiness, balance sheet strength and currency of the loan based on standardised inter-loan agreements.
  • The billing of service charges by head office to OPCOs is based on time commitment, transaction volume or actual costs incurred plus a margin – this is usually the difference between the market rate and the risk-free rate and may be agreed with the tax authorities.

What are the benefits of good managing of Transfer Pricing?

  • Reduced Tax Risk
  • Reduced margin Risk
  • Improved Cash repatriation and concentration
  • Accurate cost allocation and recovery
  • Reduced Trapped Cash


Thank you for reading. If you want more explanation, I’d be happy to help!


Vasu Reddy

Corporate Treasury, Finance Executive