How intercompany recharges affect transfer pricing for multinationals

It is normal for multinational companies to centralise some functions by having a few staff perform or procure some services or goods on behalf of the whole group. Subsequently, the costs incurred by the central entity are recharged to the respective beneficiary entities in the group. This is known as intercompany recharging.

Generally, intercompany recharging is a business model to reduce costs. For example, centralised procurement of goods results in better pricing and payment terms given larger bulk purchases.