Operations & compliance
Year-end adjustment
A year-end adjustment is a correction made to an entity's results after the accounting period closes, bringing its actual profitability into line with the target margin set out in the transfer pricing policy, and it is common for entities remunerated on a cost-plus or resale-minus basis where actual costs only become known late.
Adjustments can be made through a true-up invoice between the entities involved, a compensating journal entry, or in some cases a customs-adjusted price change, and the correct mechanism depends on local tax, VAT and customs rules, which do not always align neatly with each other on timing or treatment. This matters in practice.
Getting year-end adjustments wrong, either by missing them entirely or processing them inconsistently across entities, is a frequent audit trigger, since a large unexplained adjustment close to year-end signals to tax authorities that the transfer pricing policy was not actually being followed during the period.
In practice
What matters when applying year-end adjustment
- Identify entities needing adjustment before close
- Choose invoice, journal or price adjustment mechanism
- Check VAT and customs impact of the method chosen
- Process adjustments consistently across entities
- Document the calculation supporting each adjustment
Frequently asked
Common questions
Why are year-end adjustments needed?+
They correct actual results to match the target margin set by the transfer pricing policy, which is often necessary because actual costs are not fully known until the period closes.
What is the risk of frequent large year-end adjustments?+
Large recurring adjustments suggest the transfer pricing policy was not properly applied during the year, which is a common trigger for further tax authority scrutiny. This matters in practice.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.