KPMG report: Transfer pricing implications of intercompany fees for internal carbon pricing

Transfer pricing practitioners need to understand how their business treats or intends to treat internal carbon pricing.

Transfer pricing implications

Companies are acting on reducing carbon emissions and mitigating related risks by computing an internal CO2 price (ICP) as their financial cost of emissions. To effectively act on emission reduction, some companies are considering charging intercompany carbon fees to their business units for management reporting purposes. While these fees are not statutory costs that directly affect their tax filings, they will encourage business units to lower carbon emissions, as well as demonstrate greater profitability for management reporting purposes. Companies may need to assess if their ICP measurement and subsequent intercompany carbon fees are consistent with their tax and transfer pricing objectives.

While the introduction of internal carbon pricing is still unrefined, first-mover companies—often without consulting the tax department—have already calculated an internal carbon price and allocated the related emission costs across the company as an intercompany carbon fee for management reporting purposes.

Transfer pricing practitioners need to understand how their business treats or intends to treat internal carbon pricing and lean in with their expertise to create an arm’s-length methodology to support the ICP and the associated allocations of intercompany carbon fees.

Read a KPMG report* [PDF 351 KB]: Intercompany Fees for Internal Carbon Pricing: The Next Frontier?

*This report was published in Tax Notes International (13 February 2023) and is provided with permission.



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