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Companies conduct business not only with external parties such customers and vendors; they also transact internally within their groups. These internal transactions are usually recorded at transfer pricing, which is regulated according to a prescribed

group policy. The price is set by taking into account the commercial, strategic, and taxation factors of the affiliates, their business segments, and the group. In SAP S/4HANA, transfer pricing functionality is a standard feature. This section explains the purpose of transfer pricing and how it can be applied.

There are two types of transfer pricing: intercompany transfer pricing and profit center transfer pricing.
1 Intracompany STO: Material is transferred from plant P100 to plant P10A across two profit centers but within the same company. This stock transfer uses profit center transfer pricing.

2 Intercompany STO: Material is transferred from plant P10A to plant P200 across two company codes but within the same profit center. This stock transfer uses intercompany transfer pricing.

3 Intercompany STO: Material is transferred from plant P200 to plant P300, across two profit centers and across two company codes. This stock transfer uses intercompany and profit center transfer pricing.

Profit center transfer pricing is the price negotiated for goods transferred from one profit center to another profit center. It is posted as revenue to the issuing profit center and as cost to the receiving profit center.

When stock is transported across two profit centers, profit center transfer pricing can be applicable regardless of whether it is an intracompany or intercompany transaction.

It is not possible to apply profit center transfer pricing when stock is transported within the same profit center. For this reason, a profit center assigned to the material master must be set up with sufficient granularity to enable profit center transfer pricing.