Global Transfer Pricing Services Market Research Report 2024-Competitive Analysis, Status and Outlook by Type, Downstream Industry, and Geography, Forecast to 2030

Global Transfer Pricing Services Market Research Report 2024-Competitive Analysis, Status and Outlook by Type, Downstream Industry, and Geography, Forecast to 2030

Transfer pricing refers to the price of goods and services exchanged between enterprises under the same control, such as between a multinational company and its subsidiaries, or between divisions of the same company located in different countries. Transfer pricing services are the process of setting prices for service transactions between related entities within a multinational group. Multinational corporations can manipulate transfer prices to move profits to low-tax jurisdictions. Transfer pricing can save businesses tax and is a complex and often contentious area of tax compliance and planning.

Market Overview:

The latest research study on the global Transfer Pricing Services market finds that the global Transfer Pricing Services market reached a value of USD 11272.62 million in 2023. It’s expected that the market will achieve USD 19446.02 million by 2029, exhibiting a CAGR of 9.51% during the forecast period.

According to a report released by the United Nations Department of Economic and Social Affairs, the prospects for a strong global economic recovery remain bleak at present. Stubborn inflation, rising interest rates, and increased uncertainty all stand in the way of sustainable economic development. Inflation remains high in many countries. While upward price pressures are expected to ease gradually, inflation will remain well above central bank comfort zones in many countries. Amid disruptions in local supplies, high import costs, and imperfect markets, food inflation is high in most developing countries, disproportionately affecting women, children, and the poor, and exacerbating food insecurity. Global monetary tightening has exacerbated the fiscal and debt vulnerabilities of developing countries. Rising borrowing costs and a stronger dollar have also increased debt service burdens and the risk of debt default. Financing constraints will limit the ability of governments to invest in education, health, sustainable infrastructure, and energy transition, thereby affecting the acceleration of sustainable development.

In the software industry, the costs of labor and benefits, financing, utilities, and cloud services have increased or are about to increase amid inflation. The average salary for software engineers is also rising. This makes it more difficult for IT companies to manage spending while still maintaining a high-quality product or service. Rising inflation could lead to increased demand for high-tech services and products while dampening consumer spending. This further complicates information technology companies' ability to remain competitive. As software vendors deal with the effects of inflation, they are now more likely to view support as a profit center, optimizing support at the expense of end users and resulting in a potentially degraded experience at higher costs. For example, vendors separate support for applications from existing subscription and maintenance costs to create additional revenue streams. To avoid getting into trouble for misunderstanding a price increase, suppliers need to fully explain the rationale for the new pricing or provide more value. For example, consider customizing price increases based on factors such as customer age, the size of the last price increase, the amount of a product discount when the customer first signed up, or usage level. At the same time, cloud providers are raising prices, and more enterprises are expected to carefully evaluate and prioritize their cloud needs in 2023 and beyond. More and more businesses are investing in automation initiatives to leverage all relevant automation technologies to automate processes across IT and other functions, improve customer engagement, optimize costs, and reduce risk.

Inflation will affect many aspects of transfer pricing arrangements, including the impact on interest rates, exchange rates, forecasts for budgeting or valuation purposes, inter-company agreements, and asset strength adjustments. High costs and rising interest rates add to the complexity of corporate transfer pricing. When developing transfer pricing policies, companies must ensure that prices reflect the current market value of goods and services. The discount rate used in the valuation may be affected and therefore the asset value, so the timing of the transaction is critical. Higher interest rates may also lead to more scrutiny and disputes between multinational corporations and tax authorities over intercompany financing. In periods of high inflation, foreign exchange hedging maybe even more important, so multinationals should allocate the associated costs appropriately. The budget prepared by an MNE at the beginning of a financial year may not reflect changes in standard costs due to inflation during the year, which may result in substantial deviations between actual results and the MNE's stated transfer pricing policy. in a highly inflationary environment. Companies should consider using contract clauses that provide flexibility. Identifying issues at the outset provides multinationals with the greatest flexibility to successfully address the corresponding tax risks, and issues often must be identified before the end of the year. Once detected, the specific remedies will depend largely on the facts and circumstances of the transaction, including the intended allocation of transaction risk. To keep up with changing market conditions, multinational enterprises can implement transfer pricing automation technologies to more effectively monitor intercompany transactions in real time and minimize control risks and year-end adjustments.

Benefits of transfer pricing

Transfer pricing is a very useful tool for businesses of all sizes dealing with a variety of international tax issues. Benefits of transfer pricing include tax benefits; reduced customs duties; reduced income taxes; cost-saving tools for other departments in the same organization; and making dealings between departments more transparent. Transfer pricing enables companies to minimize customs duties costs and other business expenses. When businesses ship goods to high-tariff areas, they can take advantage of lower transfer prices to reduce the tax base of the transaction. Transfer pricing ensures that client companies benefit from lower tax rates under cross-border national and international tax laws. Transfer pricing documentation is the basis for determining the overall costs of the association between two entities and helps avoid or reduce tax liability. If a client has proper transfer pricing documentation, it gets several tax breaks that help it avoid taxes in different countries. Transfer pricing can significantly reduce a customer's income tax because transfer pricing allows a business to increase prices for products sold in areas with higher taxes, which can help the company balance profits. The transfer price is usually at or below the market price, which results in cost savings to the entity purchasing the product or service. Transfer pricing increases the transparency of intra-entity transactions. In business, raw material supply shortages and price fluctuations from suppliers can cause manufacturing disruptions or slowdowns. Transfer pricing helps solve this problem to a large extent. Since other departments of the same company are preparing raw materials, the receiving department can easily predict the price and supply of raw materials while planning, so supply chain problems can be alleviated. Therefore, transfer pricing is used to distribute benefits throughout an organization, primarily to avoid tax laws and reduce the tax burden of multinational corporations. The advantages of transfer pricing determine the demand for transfer pricing services from downstream customers.

Increase in taxes on multinational corporations

Global economic integration, the widespread influence of market economies, and the liberalization of international trade and financial activities have contributed to the growing influence of multinational corporations. Multinational corporations, working with governments and international institutions, have become major players in driving and defining the global economy. Multinational corporations headquartered in the United States and abroad employ about one-third of U.S. private-sector workers and more than three-quarters of manufacturing workers. Because MNCs pay higher average salaries than other employers, they account for almost 40 percent of all private sector employee compensation and 90 percent of manufacturing. Multinational corporations account for the majority of U.S. industrial R&D and more than half of all capital expenditures and exports. Multinational corporations grow at about the same rate as the overall economy. In recent years, multinational companies have increased their recruitment overseas, mainly to save labor costs and produce goods and services for foreign markets. The R&D hubs of multinational companies are also increasingly concentrated in new centers such as China, India and Israel. Data released by the U.S. Bureau of Economic Analysis in 2023 show that the U.S. foreign direct investment position, or cumulative investment level, increased from $6.37 trillion at the end of 2021 to $6.58 trillion at the end of 2022, an increase of $212.2 billion. U.S. multinational enterprises (MNEs) have investments in almost every country. As of the end of 2022, their investments in subsidiaries in five countries accounted for more than half of the total U.S. overseas direct investment positions. These five countries are the United Kingdom, the Netherlands, and Luxembourg, Ireland and Canada. From an industry perspective, manufacturing (50.1%), finance and insurance (14.4%) subsidiaries have larger investments. The U.S.’s foreign direct investment position increased by $216.8 billion during the same period. Japan, the United Kingdom, the Netherlands, Canada and Germany are the top five investing countries. Foreign direct investment in the United States is mainly concentrated in the U.S. manufacturing industry, accounting for 42.4%. There is also considerable investment in finance and insurance and wholesale trade.

There are three main channels through which multinational companies can transfer profits out of high-tax countries, debt transfer; registering intangible assets such as copyrights or trademarks in tax havens; and transfer pricing. Multinational companies report profits through various legal means, such as transferring their intellectual property (IP) to low-tax countries such as Bermuda and Ireland. U.S. companies are increasingly using transfer pricing and bilateral tax treaties to make their U.S. profits look like they were earned in tax havens. Economists at the University of California, Berkeley, and the University of Copenhagen estimate that as much as 40% of multinational corporate profits are moved to tax havens each year, reducing global corporate tax revenue by $200 billion. Multinational enterprises have become a common target of tax authorities seeking to restrict the use of transfer pricing strategies to reduce taxable income. On the one hand, transfer pricing is universal. Transfer pricing affects a variety of intercompany transactions, including but not limited to transfers of tangible property (products), transfers of intangible assets, loans (interest), and provision of services. On the other hand, tax disputes related to transfer pricing tend to be large-scale. In 2023, the IRS claimed that The Coca-Cola Co. limited its U.S. royalty income, causing it to underpay more than $3.4 billion in taxes. As governments pursue tax revenue more aggressively, middle-market organizations with international operations face serious risks associated with transfer pricing taxes. The number of transfer pricing audits is expected to increase as regulators focus on multinational companies. As a result, transfer pricing issues will continue to be of concern to multinational tax executives due to the scale, complexity and subjectivity of transfer pricing decisions, disputes involving multiple countries, and severe penalties and reporting requirements. As the economic size and taxes of multinational corporation’s increase, the demand for transfer pricing services gradually increases.

Region Overview:

In 2022, the share of the Transfer Pricing Services market in North America stood at 44.48%.

Company Overview:

The major players operating in the Transfer Pricing Services market include PwC, Deloitte, Ernst & Young LLP, KPMG, RSM, etc. Among which, PwC ranked top in terms of sales and revenue in 2023.

PwC is a network of professional services firms that provide audit, accounting, financial, tax due diligence, valuation, human resources, and forensic services to its clients. The firm caters to clients in the automotive, hospitality and leisure, entertainment and media, technology, financial services, real estate, transportation, logistics, and retail sectors among others.

Segmentation Overview:

By type, Transfer Pricing Execution segment accounted for the largest share of market in 2022.

Application Overview:

By application, the Large Enterprise segment occupied the biggest share from 2018 to 2022.

Key Companies in the global Transfer Pricing Services market covered in Chapter 3:

Ecovis
Ernst & Young LLP
PwC
Crowe
Deloitte
Grant Thornton International Ltd
RSM
International Transfer Pricing Specialists, S.L.
KPMG
BDO Limited
Thomson Reuters
Cherry Bekaert
Bennett Thrasher, LLP
Kroll, LLC
Tax Consultants International B.V.

In Chapter 4 and Chapter 14.2, on the basis of types, the Transfer Pricing Services market from 2019 to 2030 is primarily split into:

Transfer Pricing Planning
Transfer Pricing Compliance
Transfer Pricing Execution
Others

In Chapter 5 and Chapter 14.3, on the basis of Downstream Industry, the Transfer Pricing Services market from 2019 to 2030 covers:

SMEs
Large Enterprise

Geographically, the detailed analysis of consumption, revenue, market share and growth rate, historic and forecast (2019-2030) of the following regions are covered in Chapter 8 to Chapter 14:

North America (United States, Canada)
Europe (Germany, UK, France, Italy, Spain, Russia, Netherlands, Turkey, Switzerland, Sweden)
Asia Pacific (China, Japan, South Korea, Australia, India, Indonesia, Philippines, Malaysia)
Latin America (Brazil, Mexico, Argentina)
Middle East & Africa (Saudi Arabia, UAE, Egypt, South Africa)