TRANSFER PRICING AS A CAREER OPTION

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TRANSFER PRICING AS A CAREER OPTION

  1. 1. TRANSFER PRICING AS A CAREER OPTION Lorraine Eden, Professor of Management, leden@tamu.edu April 2011I. BACKGROUND A transfer price is the price of a product that moves within the multinational enterprise (MNE), from one unit in the MNE (the parent or an affiliate) to another unit. Examples include the pricing of goods manufactured by a parent firm that are sold to a wholly owned distributor in another country, the licensing of intangible assets to a foreign subsidiary, and the valuation of engineering services provided by one affiliate to another. Transfer pricing is the setting of prices of intrafirm (related party) transactions so as to achieve the MNE’s internal goals (e.g., motivating managers, evaluating performance), and external goals (e.g., arbitraging differences in government regulations between countries). MNEs are also subject to external regulation from customs, income tax and other governmental authorities where the purpose is to ensure that transfer prices reflect the arm’s length prices (i.e., prices that would be set by unrelated firms in an open market). Transfer pricing careers can be found in both the private and public sectors. The Big Four accounting firms are perhaps the single largest private-sector employer of transfer pricing specialists. Many graduates also find employment with medium-sized accounting firms, economic consulting firms and boutique transfer pricing firms. International law firms also hire transfer pricing experts, both as economists and as tax lawyers. Private industry is another employer, where large corporations often have their own in-house transfer pricing staff. In the public sector, almost all national governments have formal transfer pricing regulations for corporate income tax and customs duty payments by MNEs, and therefore employ economists and lawyers to develop and administer these regulations and to settle disputes. National statistical agencies and security agencies that focus on illegal financial activities (e.g., fraud, money laundering, trade mispricing) are other large public-sector employers. Transfer pricing is one of the rare fields where students who are non-US citizens can be hired for fulltime jobs in the United States because of the excess demand for transfer pricing professionals. Starting salaries for students graduating with a master’s degree are in the $60,000-$85,000 range, depending on the degree program (e.g., an MBA pays more than a Masters in International Affairs) and whether the student has prior work experience. The normal career path, with a Big Four consulting firm for example, would start as a consultant/associate. After two years, the individual would be promoted to senior consultant/associate, and after another two or three years promoted to manager, then to senior manager, and eventually to partner in the firm. Many transfer pricing professionals will move back and forth between firms or into government for a few years and then back to another firm. International assignments are also common. While undergraduate students are occasionally hired for transfer pricing careers, the typical student has a masters or PhD degree. The most common degrees are: Masters or PhD in Economics, Masters in International Affairs specializing in International Economics, MBA, and Masters in a business discipline (e.g., Accounting, Finance, Information Systems, International Business, Management or Marketing). Transfer Pricing as a Career Option by Lorraine Eden (April 20, 2011) 1
  2. 2. II. TRANSFER PRICING AT TEXAS A&M Texas A&M University does not at present offer a formal University-approved Certificate in International Transfer Pricing. Since 2007, however, I have been recommending to my students a cluster of related courses, which (for want of a better term) I call the Transfer Pricing Module (TPM) with MGMT 663/INTA 689, International Transfer Pricing, as the core requirement. I have been teaching transfer pricing (TP) as a component in my undergraduate and graduate classes at Texas A&M University for some years now, and began actively working to place students in fulltime careers in transfer pricing starting in 2006. To date, I have placed about three dozen students in summer internships and fulltime positions as TP professionals. Most work for the Big Four accounting firms, but some are with smaller accounting firms, international law firms, and multinationals large enough to have their own in-house TP staff. In addition, I’ve placed students in summer internships with the Internal Revenue Service and the Bureau of Labor Statistics in Washington, DC. I have former students working in places as varied as Beijing, Berlin, Dallas, Houston, Los Angeles, New York, San Francisco and Washington DC. I think of transfer pricing as a bit like the metaphor of the elephant where each of the individuals who looked at the elephant saw different things – a trunk or leg or eyes or the tail. The right price can depend on which part of the “elephant” you are looking at. Because pricing is such an integral part of what multinationals do, determining the right price for related party transactions requires an understanding of the “whole elephant”, not only economics, but also of management, finance, accounting, law, international business, strategy and tax. Students interested becoming a transfer pricing professional can therefore enter this career path from many different points including: (1) masters or PhD in economics with a focus on microeconomics, taxation, industrial organization or international trade; (2) masters in international affairs, particularly students studying international trade and finance; (3) accounting students with a PPA or masters in accounting, especially those interested in corporate taxation, auditing, forensic accounting or managerial accounting, (4) MBA students interested in strategic transfer pricing, and (5) law students interested in corporate or international taxation. In Fall 2011, I will be teaching my Transfer Pricing course on Mondays and Wednesdays from 4:35 to 5:50 pm in 186 Wehner (Mays Business School). In the course, we study the most recent scholarly and professional materials on transfer pricing. Students prepare and argue mock court trials, based on real transfer pricing court cases, which are judged by transfer pricing professionals. As another assignment, each student does an in-depth interview of a transfer pricing professional. Students have a major empirical assignment. This is a tough class --- tougher than a typical master’s course --- as my goal is to train students to go directly into a full-time transfer pricing career after graduation, and that means the students need a level of expertise well beyond what is taught in a typical masters level course. In addition to the course on transfer pricing, I provide other services to my current and former students: 1. I maintain the Transfer Pricing Forum on the TAMU eLearning website. The Forum is an extracurricular activity that connects all of my on-campus transfer pricing students, whether they are currently taking a class from me or not. On the Forum are my course materials, job and Transfer Pricing as a Career Option by Lorraine Eden (April 20, 2011) 2
  3. 3. internship materials, etc. Announcements of new job and internship opportunities are posted here, along with postings of visiting speakers, etc. 2. In September 2010, I created a closed group on LinkedIn. Transfer Pricing Aggies is designed as a networking group to link my current students with Aggies who are now working professionally in transfer pricing and related areas; we now have over 60 members. I also run the group, Transfer Pricing, on Facebook. 3. In years when I do not teach the Transfer Pricing course, I run a one-day intensive Transfer Pricing Boot Camp, with former students and senior transfer pricing experts as speakers. 4. Normally, I also organize two or three brown bag seminars each year with senior transfer pricing professionals who talk about the latest issues. They normally also conduct first-round interviews for summer internships and fulltime placements. 5. From time to time, my students and I get together outside of class to “test drive” and practice on new software programs and datasets in transfer pricing; e.g., we have two dozen electronic “seats” for Thomson Reuters’ Transfer Pricing One Source Documenter, which won the 2010 Tax Awards as the most innovative tax product. Texas A&M is one of the very few places in the world where you can study transfer pricing in a university setting. If you have a potential interest in transfer pricing either as a career option, or more generally because you are interested in how MNEs work and want to understand them better, or simply because this will stretch you in a different direction than your other courses, do think about this option. If you’re interested in a career in government where regulating (e.g. IRS) or working with MNEs (e.g. US Embassies) is part of your job description, a law career in international tax, or a consulting career working with the Big Four or a boutique economics firm, transfer pricing may be a good path for you. Or at least an option to put in your “back pocket” should other options not work out! Some articles and websites that provide some background on this career path:  http://webcast.ey.com/thoughtcenter/default.aspx?seriesunid=%7B9a27a98c-314b-422d-ab24- c27379e5fbec%7D&prog=%7B53d7246a-c10d-4820-b092-9bbbc1411735%7D  http://www.deloitte.com/view/en_GX/global/article/87f08ed08affd110VgnVCM100000ba42f00aRC RD.htm  http://www.kpmg.com/Global/en/IssuesAndInsights/RSSFeeds/Pages/Global-Transfer-Pricing- Services.aspx  http://www.pwc.com/gx/en/tax/transfer-pricing/index.jhtml  http://www.tpa-global.com/  http://fasttax.thomson.com/solutions/transfer-pricing/transfer-pricing/III. TRANSFER PRICING MODULE At Texas A&M, students can take a Transfer Pricing Module that satisfies a basic list of courses typically required of a student looking to enter a transfer pricing career. Students may complete this module with or without a transfer pricing internship. This is an informal module (it will not appear on the student’s transcript). The module is outlined below; please see Prof. Eden for more details. Transfer Pricing as a Career Option by Lorraine Eden (April 20, 2011) 3
  4. 4. Prerequisites for the Transfer Pricing Module include (1) graduate standing at Texas A&M and (2) somebackground in economics and statistics. Particularly useful undergraduate degrees are Economics,Accounting or Finance.1. Module Option A: Transfer Pricing Module (no internship)To complete the Transfer Pricing Module, without an internship, a student must successfully completethe following four graduate-level courses (or substitutes) for a total of twelve (12) credit hours. 1. MGMT 663 / INTA 689: International Transfer Pricing (old number MGMT 689/INTA 689). Students may substitute another Texas A&M graduate-level course with permission of Prof. Eden if the course has significant and substantial content focused on transfer pricing and intrafirm trade. 2. A graduate-level course on the multinational enterprise. The recommended course is MGMT 667/INTA 629: Multinational Enterprises. Students may substitute another Texas A&M graduate course with permission. Note however that courses on the international environment facing business or on business strategy for domestic firms are not acceptable substitutes; the course must focus on the multinational enterprise or international business strategy. Possible alternatives vary from year to year (check the Management Department for offerings), but may include:  MGMT 679: International Business Policy (may only be available to MBA students)  MGMT 678: International Management 3. A graduate-level course in Accounting. The recommended course is ACCT 647/FINC 647: Financial Statement Analysis. Note that ACCT/FINC 647 requires students to have had at least one prior accounting course; the typical prerequisite is ACCT 640 Accounting Concepts and Procedures or ACCT 610 Financial Accounting (MBA students only). Students may substitute another Texas A&M graduate course with permission from Prof. Eden. Possible alternatives may include:  ACCT 610: Financial Accounting (available to MBA students only)  ACCT 620: Management Accounting and Control  ACCT 621: Corporate Taxation  ACCT 640: Accounting Concepts and Procedures  ACCT 646: International Accounting 4. A graduate-level course in Applied International Trade, Finance or Taxation. The recommended course is INTA 625: International Trade Policy. Students may substitute another graduate-level Texas A&M course with permission from Prof. Eden. Note, however, that the course must be an applied (quantitative) course in international trade, finance or taxation, not a pure theory course. Possible alternatives may include:  ACCT 621: Corporate Taxation  AGEC 622: Agribusiness and Analysis and Forecasting  FINC 613: Finance for the Professional II (available to MBA students only)  FINC 645: International Finance  INFO 667: Logistics and Distribution Management Transfer Pricing as a Career Option by Lorraine Eden (April 20, 2011) 4
  5. 5.  INTA 689: Finance for Development  INTA 689: Financial Instruments and Regulations2. Module Option B: Transfer Pricing Module with InternshipTo complete the Transfer Pricing Module with Internship, a student must successfully complete therequirements for the International Transfer Pricing Module and also complete a transfer pricinginternship. Transfer pricing internships normally take place during the summer semester, but can takeplace in other semesters. The internship should, if possible, be taken after the student has completedMGMT 663/INTA 689 International Transfer Pricing. The student must work fulltime for 4-6 weeks in thetransfer pricing area for a private sector firm or government agency. Most internship placements arewith the transfer pricing groups of the Big Four accounting firms, the US Internal Revenue Service oreconomic consulting firms, but other placements (e.g. outside of the United States or with law firms) arealso possible. FYI, the Big Four normally recruit for summer internships in October-November and inJanuary-February, for July-August internships. If fulltime employment offers are made, they are typicallyat the end of the internship, with start dates after the student’s graduation.3. Recommended Components for the Transfer Pricing Module (Options A and B)In addition to courses outlined above, the following courses and/or activities are also highlyrecommended. They provide additional depth and/or breadth and increased marketability for thestudent in terms of successful placement. 1. A graduate-level course in applied research methods. The course should cover statistics and basic regression analysis, and use a statistical package such as STATA or SAS for problem solving. The recommended course is BUSH 632: Quantitative Methods in Public Management II, but any other graduate-level course that covers basic regression analysis and uses STATA or SAS can be substituted. A course in Advanced Microsoft Excel is also recommended. 2. Excellent English writing, speaking and presentation skills are a “must” for successful job placement in transfer pricing. Students who need remedial training are strongly encouraged to upgrade their written and oral business English skills before beginning the internship/job search process. Please see Prof. Eden for information on testing and remedial training materials. 3. Specialized courses are also useful. Examples include courses in international tax law, asset valuation, risk measurement, supply chain management, particular industries such as oil and gas or information technology, negotiations or foreign languages. 4. Soft skills are also very important for successful placement in transfer pricing. Chief among these are: (1) strong logical reasoning abilities and problem-solving skills, and (2) the ability to lead and work well with others on team consulting projects and with clients. Students are encouraged to take courses that enable them to practise these skills.4. Recommended Plan of Study for Students in Different Degree ProgramsBelow I outline how students in the most typical graduate programs at Texas A&M can meet therequirements for the International Transfer Pricing Module. These are summarized in Box 1 below. Transfer Pricing as a Career Option by Lorraine Eden (April 20, 2011) 5
  6. 6. A key advantage of the Transfer Pricing Module is that students can meet the module’s requirementswithin their existing degree plan. Students do not need to take additional courses over and abovetheir program requirements. Either their required courses for their degree program already count forthe TP Module, or they can meet the requirements by using electives to take the needed courses.Box 1 provides a summary of the results. Note that students in other graduate programs, including PhDprograms, are likely to also qualify for the module; only the most typical programs are outlined below. 1. Masters of Business Administration (MBA) and Executive Masters of Business Administration (EMBA). MBA and EMBA students should take MGMT 663 as a Directed Elective in their current program of study. MBA students have one Directed Elective in Term 4; if they take MGMT 663 as the Directed Elective, students fulfill the requisites for the Module.  MGMT 663: International Transfer Pricing (MBA/EMBA Directed Elective)  MGMT 689: International Business policy (MBA Term 4 required course)  ACCT 620: Management Accounting and Control (MBA Term 3 required course)  FINC 613: Finance for the Professional II (MBA Term 3 required course) 2. Master of Science in Accounting - Tax Consulting/Financial Planning Track (MS ACCT-TAX). MS ACCT-TAX students already have two courses that meet the requisites for the Module. The MS Tax also requires two Directed Electives; by taking MGMT 663 and MGMT 667 as the two Directed Electives, students in MS ACCT-TAX fulfill the requisites for the Module.  MGMT 663: International Transfer Pricing (MS ACCT-TAX Directed Elective)  MGMT 667: Multinational Enterprises (MS ACCT-TAX Directed Elective)  ACCT 647: Financial Statements Analysis (MS ACCT-TAX required course)  ACCT 621: Corporate Taxation (MS ACCT-TAX required course) 3. Master of Science in Management Information Systems (MS/MIS). MS/MIS students have two courses that qualify as replacements for courses in the Module. In addition, MS/MIS students can take up to two Directed Electives. By taking MGMT 663 and MGMT 667 as the two Directed Electives, MS/MIS students fulfill the requisites for the Module.  MGMT 663: International Transfer Pricing (MIS Directed Elective)  MGMT 667: Multinational Enterprises (MIS Directed Elective)  ACCT 640: Accounting Concepts and Procedures (MIS required course)  INFO 667: Logistics and Distribution Management (MIS required course) 4. Master of Science in Marketing (MS MKTG). MS in Marketing students must take ACCT 640 prior to entering the MS MKTG program and MTKG 635 can substitute for the applied trade/finance/tax course in the Module. The MS MKTG student therefore must take two Directed Electives (MGMT 663 and MGMT 667) in order to complete the Module.  MGMT 663: International Transfer Pricing (MS MKTG Directed Elective)  MGMT 667: Multinational Enterprises (MS MKTG Directed Elective)  ACCT 640: Accounting Concepts and Procedures (MS MTKG prerequisite)  MTKG 635: Marketing Analytics and Pricing (MS MTKG required course) 5. Master of Agribusiness (MAB). MAB students can take up to three Directed Electives. Two courses, ACCT 640 and AGEC 622, are required by the MAB program. MAB students would therefore need to fill two of their Directed Electives with MGMT 663 and MGMT 667 to Transfer Pricing as a Career Option by Lorraine Eden (April 20, 2011) 6
  7. 7. complete the Module.  MGMT 663: International Transfer Pricing (MAB Directed Elective)  MGMT 667: Multinational Enterprises (MAB Directed Elective)  ACCT 640: Accounting Concepts and Procedures (MAB required course)  AGEC 622: Agribusiness Analysis and Forecasting (MAB required course) 6. Master’s Program in International Affairs (MPIA). MPIA students can complete the Module by selecting the following courses as electives or core courses in their MPIA program. The MPIA program has several Directed Electives so that students should be able to complete the Module by taking the courses below, or substitutes, as Directed Electives.  INTA 689/MGMT 663: International Transfer Pricing  INTA 629/MGMT 667: Multinational Enterprises (or an approved substitute)  ACCT 647: Financial Statements Analysis (or an approved substitute)  INTA 625: International Trade Policy (or an approved substitute) 7. Master’s Program in Public Service and Administration (MPSA). MPSA students can complete the Module by selecting the following courses as electives or core courses in their MPSA program. The MPSA program has several Directed Electives so that students should be able to complete the Module by taking the courses below, or substitutes, as Directed Electives.  INTA 689/MGMT 663: International Transfer Pricing  INTA 629/MGMT 667: Multinational Enterprises (or an approved substitute)  ACCT 647: Financial Statements Analysis (or an approved substitute)  INTA 625: International Trade Policy (or an approved substitute) Box 1: Summary of Course Requirements for Transfer Pricing Module (Selected Programs Only)* MGMT 663/ MGMT 667/INTA ACCT 647 (or INTA 625 (or substitute) INTA 689 (or 629 (or substitute) substitute) substitute)Course Subject Transfer Pricing Multinational Accounting Applied Trade, Finance Enterprises or TaxMBA Directed MGMT 689 ACCT 620 FINC 613 (required) Elective (Required) (required)MS ACCT-TAX Directed Directed Elective ACCT 647 ACCT 621 (required) Elective (required)MS/MIS Directed Directed Elective ACCT 640 INFO 667 (required) Elective (required)MS MKTG Directed Directed Elective ACCT 640 MKTG 635 (required) Elective (prerequisite for entry into program)MAB Directed Directed Elective ACCT 640 AGEC 622 (required) Elective (required)INTA Directed Directed Elective Directed Elective INTA 625 (required for Elective IED track)MPSA Directed Directed Elective Directed Elective Directed Elective Elective Transfer Pricing as a Career Option by Lorraine Eden (April 20, 2011) 7
  8. 8. * Note that all students can complete OPTION A (TP Module without an internship) within their existing programs. To complete OPTION B (TP Module with an internship), students must also complete a Transfer Pricing Internship. For some programs (e.g. the MPIA and MPSA programs), an internship is a compulsory part of the degree program; for others it is not. Thus, OPTION B may require additional work for some programs; students in those programs will therefore most likely complete OPTION A.IV. ADVANCED DIPLOMA IN INTERNATIONAL TAXATION (ADIT) The Chartered Institute of Taxation (CIOT) offers an Advanced Diploma in International Taxation (ADIT). This is a specialist qualification for professionals in the international taxation area. In 2011, CIOT added a Transfer Pricing Option Examination Paper that can be taken as a stand-alone certificate or as part of ADIT. The Transfer Pricing Certificate is intended to be a “global benchmark of quality and achievement and an independent means of demonstrating transfer pricing expertise.” The first ADIT Transfer Pricing Examination will take place in June 2011, and annually thereafter. Texas A&M University is recognized by the Chartered Institute of Taxation as a Course Provider for this exam, and students completing MGMT 663/INTA 689 are encouraged to sit for the ADIT Transfer Pricing examination. For more information see: http://www.tax.org.uk/adit/aditnoticeboard/TPpaper. http://www.tax.org.uk/Resources/CIOT/ADIT%20Transfer%20Pricing%20SyllabusWEB.pdfV. CONTACT INFORMATION Please schedule an appointment with, or email, Prof. Lorraine Eden (leden@tamu.edu) if you are interested in the Transfer Pricing Module and want to discuss this further. Lorraine Eden Professor of Management Associated Faculty, George H.W. Bush School of Government and Public Service John H. Dunning Visiting Professor, Henley Business School, University of Reading TAMU 4221, Mays Business School 415D Wehner Building Texas A&M University College Station, TX 77843-4221 Phone: 979-862-4053 Fax: 979-845-9641 Email: leden@tamu.edu WWW: http://www.voxprof.com Transfer Pricing Aggies: http://www.linkedin.com/groups?mostPopular=&gid=3419288 Transfer Pricing as a Career Option by Lorraine Eden (April 20, 2011) 8

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