Keep transfer pricing in mind when planning ESG

Recently, there has been a noticeable increase in interest in ESG topics. This is due to two reasons: the increase in stakeholder interest in off-balance sheet activities and the extension of the ESG reporting obligation (so far, the ESG issue in Poland concerned about 150 entities, but due to the change in the rules, from 2024 the obligation will ultimately cover more than 3,500 companies). While it is clear that ESG activities affect companies’ operations, not everyone realises how strongly they can affect transfer pricing in groups.

What is ESG?

ESG (an acronym for Environment, Social, Governance) is an approach to business management that focuses on environmental, social and corporate governance aspects. Thus, it takes into account three non-financial elements that have a significant impact on a company’s value and its short- and long-term position.

ESG impacts on business…

Initiatives undertaken as part of an ESG strategy have an impact on entities’ operations, and this impact is visible in both financial and non-financial aspects. This is due to the fact that ESG implementation is related to, among other things:

  • the need to make changes to existing business models that entail major expenditure,
  • developing new products or processes to improve the functionality of existing resources,
  • the need for changes in supply chain and strategy,
  • the creation of intellectual property.

…and thus also affects transfer prices

In the case of related parties, it is important to remember that they must operate in accordance with the arm’s length principle. This principle guarantees equal treatment of entities that belong to groups and those that do not. It is therefore crucial to answer the question each time – how do we act in accordance with this principle when we, as a group, undertake ESG-related activities?

Doubts can multiply at every turn, for example:

  • How will changing suppliers affect the existing business model and supply chain?
  • How to set the terms and conditions between related parties taking into account these changes? Is it necessary to change the existing group settlement model?
  • How to allocate the costs incurred for ESG implementation activities and who should really bear the economic burden? How to demonstrate the relationship between costs and revenues in the short term?
  • Can activities and changes to the operating model undertaken to introduce ESG constitute a restructuring under transfer pricing regulations? How can this be verified?
  • In order to maintain tax transparency, should my company have a transfer pricing policy?

The list of doubts and questions can be long. Therefore, it is worth considering from the outset, when planning ESG activities, how the planned changes will affect transfer pricing and, if there is any doubt, to consult your tax adviser. However, a plan alone is not enough and it is important to monitor the new operating model in practice afterwards. 

In today’s world, fiscal transparency and taking action in accordance with the principle of fair play is an important part of building a company’s image.


Actions taken to introduce ESG into a group’s organisational model should be carried out with transfer pricing in mind. This is because such activities often create new value, perform new functions, involve new assets and generate additional risks. Therefore, it is important that, as ESG initiatives are undertaken, related parties consider the potential impact of these activities on the transfer pricing terms adopted to date (current settlement models, adopted transfer pricing policies), but also on future settlements.


Witold Tomczak

Witold Tomczak

Senior Consultant in the Transfer Pricing Team

Tel.: +48 503 973 937