A guide to success in the Transfer Pricing exam

Managing your time effectively in the ADIT Transfer Pricing exam is crucial, making every minute count.

Let's start with the exam format. Like other optional ADIT modules, the TP paper is divided into three parts:

• Part A: Two mandatory questions worth 25 marks each. These are typically case studies testing the fundamentals of TP, such as comparability analysis, choice of TP methods and identifying TP risks.

• Part B: Two questions worth 20 marks each – choose only one. These questions may focus on more specialist areas of transfer pricing, for example, business restructuring.

• Part C: Five questions worth 15 marks each - answer two. These are often split into multiple components, covering a range of topics such as transfer pricing of specific transactions (like services or intangibles), dispute resolution and case law. Choose your Part C questions wisely and leave yourself enough time to answer them thoroughly.

Time management is crucial - make every minute count! You have 3 hours and 15 minutes. While the first 15 minutes is no longer mandatory reading time, I recommend using it to read the paper, select your questions, and plan your approach.

The remaining three hours give you 1.8 minutes per mark - stick to this timing:

• 25-mark questions (Part A): 45 minutes each

• 20-mark questions (Part B): 36 minutes

• 15-mark questions (Part C): 27 minutes each

For questions with multiple parts, divide your time based on the marks allocated to each component. When your time is up, move on - you can always come back later if you have time.

Sitting at least one mock paper under exam conditions is the best preparation for managing your time in the exam. You may not get it right initially, but you'll learn from your mistakes. Success comes from attempting all five questions well - completing only four makes passing much harder. As with most things, practice makes perfect!

Use the first 15 minutes to choose your questions and decide on the order that you’re going to answer them in. Here are my tips:

• Start with a Part C question. These theoretical questions can build confidence. Questions with smaller components (like 5+5+5 marks) often yield marks more efficiently. Starting with a familiar Part C topic might save you time for Part A.

• Tackle Part A next. These questions are worth 50% of the marks and require you to apply your TP knowledge to the scenarios. While it's tempting to spend more than 45 minutes on each, remember diminishing returns - the final 30-40% of marks are hardest to achieve and rarely justify extra time.

• After 1.5 hours on Part A, move to your Part B question. These often involve complex concepts, so choose the question you're most comfortable with and focus on familiar aspects. Remember: you only need 50% to pass - don't fixate on difficult sections when you can demonstrate expertise elsewhere.

• End with your second Part C question. Ideally you will have 25 minutes left to answer it. If time management hasn't gone to plan and you're down to 10–15 minutes, don't panic. Use bullet points and note key points. Scoring 2+2+2 on a three-part question gives you 40% - which can balance out with a stronger performance in another question.

Tackling Part A case studies

Part A may appear as one large case study covering questions 1 and 2, or as two separate cases. You are usually asked to work through a transfer pricing analysis. It is critical to apply your TP knowledge to the facts given – while you can reference the OECD Transfer Pricing Guidelines, direct quotes won't earn marks.

Key tips for Part A questions:

Accurately delineate the transactions

Read the facts in the question carefully to work out what intra-group transactions are taking place. You can take blank paper and pens into the exam – use them here to draw a group structure and the transections taking place between each of the companies. Consider both sides of each transaction – i.e. when Company A sells to Company B, Company B is buying from Company A.

Conduct a functional analysis

When asked to undertake a functional analysis, look at the functions performed, assets used, and risks assumed by each of the parties to each of the transactions. A table format works well here, but make sure that you have practiced using them in Exam4 beforehand.

Identify and explain appropriate transfer pricing methodologies

Show how your chosen transfer pricing method links to your functional analysis. Remember to identify the tested party for a one-sided method. Talk about why a method may not suitable, as well as why your selected method is appropriate.

Highlight potential issues, risks and concerns

You may be asked to put yourself in the role of tax auditor. Think about what might concern the tax authorities in that jurisdiction. Watch out for entities in high-tax territories with high functionality but low profit margins, and conversely, entities in low-tax jurisdictions with limited functionality but high profits!

Final tips for maximising your marks

Helpful tips for exam day: