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Hello Friends!! This blog is wholly about how you can crack Interviews relating to the Transfer Pricing profile & Scope of Transfer Pricing Profile.
Here is the list of Questions that Big4s can check on you when applying for TP Role.
- What is transfer pricing
- What are transfer pricing methods
- Who was your previous employer?
- What do you know about Transfer
Pricing? - Tell me about an article you recently
read about Transfer Pricing. - Why PwC?
- Why did you choose this department
(Transfer Pricing)? If you had to explain Transfer Pricing shortly how would
you do it? - Can you give me an example of
transfer pricing transactions and how would you price them in order to be in
arm’s length? - Tell me about your research/opinion
on specific TP Law - Tell me about a time you conducted
research. - Why do you want to do transfer
pricing?
Scope of TP
01. What is transfer pricing?
Transfer
pricing refers to the rules and methods for pricing transactions between
enterprises under common ownership or
control (ie. Subsidiaries of large multinationals). It largely applies to the
pricing of cross-border transactions
between related entities, a good example would be the pricing of services provided by a subsidiary in the US to its
parent company in Canada. A more complex example would be the pricing of an intercompany loan between a parent
and a subsidiary.
02. Why do companies look at transfer
pricing?
Because
of the potential for cross-border controlled transactions to distort taxable income,
tax authorities in many countries can
adjust intragroup transfer prices that differ from what would have been charged by unrelated enterprises
dealing at arm’s length. For example, if a parent company provides
an intercompany loan to a subsidiary in another country,
the interest expense
associated with the loan can be deducted as a taxable expense.
For companies to comply with transfer pricing
regulations, they must adequately document/support the pricing of these
cross-border intercompany transactions. Failure to do so may result in
penalties and incorrect pricing may
lead to adjustments by tax authorities which can impact the amount of taxes owed.
Further transfer pricing planning can
result in minimizing the taxes paid by entities by structuring transactions to result in a favourable tax
outcome by decreasing revenue in a high tax jurisdiction and increasing it in a low tax jurisdiction.
03. What would someone
who works in transfer pricing
at a professional services firm look at in helping
structure transfer pricing solutions for a client?
Transfer
pricing staff would look at the financials of the entities involved in the
transaction, conduct interviews with
key staff to understand the value provided by the transaction, research
applicable transfer pricing
regulations, and they would
run comparables benchmarking to support the pricing used by the client.
04. What would a bank use transfer pricing for and how does that
affect their
financials?
Multinational Banks are
significantly impacted by transfer pricing as they tend to have a large portion
of their funding through various
intercompany structures. Hence they require significant planning and compliance
work to support their business.
The pricing used impacts
the net interest income for the various
subsidiaries of the bank and will also affect the amount
of taxes paid in the local jurisdiction. Hence
a strong transfer pricing policy with
adequate compliance to transfer pricing rules in the countries where the bank operates
is extremely vital.
05. What are some day-to-day tasks in a transfer
pricing division in a bank and at a consultancy?
Day-to-day tasks for a transfer pricing
professional could include
preparing compliance documentation, conducting comparable benchmarking to support pricing,
financial analysis and providing transfer pricing
advice to clients.
06. What is an example
of a transfer pricing
transaction you would work on?
A
good example is intercompany loan pricing. This transaction requires a more
quantitative analysis, including Bloomberg and advanced Excel
skills. A finance
background is extremely useful for working on these
transactions.
A more straightforward example is the pricing of
services between two affiliated entities. Here a simple third party comparable benchmarking can be used to support the
price charged by one related entity to another.
07. How are laws and regulations changing
and what are the ramifications?
The past two years have seen significant changes
to the transfer pricing regulatory landscape. The OECD have
come out with the Base Erosion and Profit Shifting plan to counter tax base
erosion by large multinationals like Apple who use low tax jurisdictions to shift profits and reduce corporate taxes. These regulatory changes have increased the
compliance burden on multinational corporations and have directly resulted in more transfer pricing projects for
consulting/audit firms. This has also resulted in increased hiring of transfer
pricing staff both in the industry and within consulting/audit firms.
08. What is the career trajectory and salary path?
Entry-level roles in transfer
pricing are almost exclusively in consulting/audit firms
like Deloitte, EY, PwC and KPMG. The starting
salary ranges from 50 to 60K for an analyst and depends on background, location
etc. Most entry roles are eligible for overtime pay, which can add another
10-15% to your salary. A manager’s salary ranges from 80 to 110K plus a bonus.
Career
growth in consulting/audit firms can be fairly quick in the early stages,
however progression to a senior
Manager and then Partner can be more difficult. An alternate career path is moving
to an industry transfer pricing
role after 3-4 years of experience. However,
career growth in industry roles tend to be fairly slow in comparison to
consulting/audit firms. Alternatively one can continue within the consulting/audit firms and aim to become
an equity partner
which can be a lucrative
position.
09. If people leave transfer pricing what are popular
divisions to lateral to or careers?
Transfer pricing is a fairly niche industry and after extensive experience in this
field a lateral career move can be difficult.
However, based on one’s background and area of specialization, a lateral move to a corporate finance
role is common
especially in the early to mid-career phase. Alternatively, if one has a tax/accounting background a move to a corporate or an international tax role is also fairly common.
10.What divisions does transfer pricing
work closely with?
In consulting/audit firms, transfer pricing
works closely with other tax groups, M&A
teams and the corporate finance team.
Within
the banking industry, transfer pricing staff work extensively with different
lines of business to provide advisory
and compliance services.
In addition, they also work closely with senior corporate
staff, treasury and international
tax staff to assist with planning and tax risk mitigation strategies.
Few advanced Questions on TP
01. What are the transfer pricing regulations in your country?
This question would be asked to check the knowledge of TP regulations in your own country. This is because the company you work with may need to comply with all those regulations. Try to answer, how would you ensure compliance if you got hired.
02. The most important qualities for a transfer pricing manager to
have?
Analytical skills Business knowledge Communication skills Flexibility
Problem-solving skills
03. How would you go about determining the arm’s length principle
for a specific transaction?
Your answer should include the steps you would take to determine the arm’s
length principle for a specific transaction and how it applies to your experience
as a transfer pricing manager
04. How would you determine its initial cost when setting price for
new product?
The interviewer may ask you a question like this to evaluate your decision-making process and how it relates to the company’s goals. Use examples from previous projects or experiences to explain how you would determine to price for new products. Techniques like Target costing.
Example: “First consider the cost of production, including labor costs and materials & then compare these costs with the price we expect customers to pay for the product. If there is a significant difference between the two,look at ways to reduce production costs so that we can charge more for the product without losing money.”
05.if you noticed two different business units within your company were charging customers vastly different prices for the same product or service?
Try to explain what steps you would take to ensure that all prices charged by your company’s business units are fair and equitable.
First, meet with both business units to discuss why their prices differ so much. Then work with them to create a new price structure that is more uniform across the entire company. This may involve negotiating between the two business units to find an agreeable solution for everyone
06. There is a discrepancy between the cost of producing a product and the price that customers are willing to pay. What would you do to resolve this issue?
This question is a great way to assess your problem-solving skills and ability to make decisions. When answering this question, it can be helpful to provide an example of how you would resolve the issue.
Example: “If there was a discrepancy between the cost of producing a product and the price that customers are willing to pay, first determine why the difference exists. If the company has been charging too much for its products, then lower the price to match the cost of production. However, if the company has been charging too little for its products, then raise the price to match the cost of production.”
07. What do you think is the most important aspect of performing a risk analysis?
The interviewer may ask this question to assess your ability to prioritize tasks and use your time effectively. Your answer should include a specific example of how you used risk analysis in the past, such as identifying potential risks before entering into a new contract or analyzing existing contracts for compliance with tax regulations.
Example: “I think that the most important aspect of performing a risk analysis is determining which factors are within my control and which ones I can’t influence. For instance, when I was working on a transfer pricing project at my previous company, we had to analyze our current contracts to ensure they complied with tax regulations. We couldn’t change the terms of the contracts, but we could make sure we were accurately reporting all revenue and expenses.”
08. Describe your experience with international trade.
This question can help the interviewer determine your level of experience with international trade. Use examples from previous work experiences to highlight your skills and abilities in this area.
Example: “I have extensive experience working with international trade, as I’ve been doing it for over five years now. In my last position, I was responsible for managing all aspects of international trade, including setting up contracts between suppliers and customers, monitoring compliance with tax regulations and ensuring that our company’s products were delivered on time. I also worked closely with other departments to ensure that we had enough inventory to meet customer demand.”
09. When performing financial forecasts, what type of analysis do you typically perform?
The interviewer may ask you a question like this to assess your technical skills and knowledge of the industry. Your answer should include an example of how you perform financial forecasting, but it can also be beneficial to mention any other types of analysis that you are familiar with.
Example: “In my previous role as a transfer pricing manager, I performed both top-down and bottom-up forecasts for our company’s quarterly reports. Top-down forecasting involves analyzing macroeconomic factors such as inflation rates and interest rates to predict sales trends. Bottom-up forecasting is more granular in nature and involves predicting revenue by looking at individual departments within a company.”
10. We want to improve our cash flow by lowering our accounts payable. What strategies would you suggest to accomplish this goal?
This question allows you to demonstrate your problem-solving skills and ability to apply transfer pricing strategies to improve a company’s cash flow. To answer this question, explain how you would use transfer pricing to lower accounts payable while maintaining the same level of revenue for the company.
Example: “I would suggest that we implement an invoice discounting policy where we offer our suppliers a discount on their invoices if they agree to accept payment within 30 days instead of 60 days. This strategy will allow us to reduce our accounts payable by 20% without affecting our revenue because we are only lowering the terms of one supplier.”
Thanks & Regards
TAX DESTINATION
