From Hierarchy to Harmony: The Transfer Pricing in Turquoise Organizations

From Hierarchy to Harmony: The Transfer Pricing in Turquoise Organizations

A turquoise organization, by definition, moves away from the traditional hierarchical structure. It eliminates the typical layers of management, fixed job roles, and rigid staffing arrangements. Decentralization, transparency, and customer-centricity have become so deeply ingrained in everyday business that they can be seen everywhere—from coffee shop chains to government bodies. The advantages of turquoise organizations and decentralized governance became a widely discussed topic following the 2014 publication of Frederic Laloux’s Reinventing Organizations.

In turquoise companies, instead of assigning roles with strict job descriptions, employees are given areas of responsibility that empower them to directly impact business processes. These fundamental shifts from conventional centralized corporate structures inevitably affect critical functions such as transfer pricing (TP) in multinational corporations.

Decentralization and Transfer Pricing: A Challenge and Opportunity

Transfer pricing plays a crucial role in international companies by ensuring that intra-group transactions adhere to market conditions, known as the “arm’s length” principle. Over the past decade, largely due to the implementation of the BEPS Action Plan in 2015, many multinationals have strengthened their substance in the countries where they operate. This shift has increased the autonomy of their subsidiaries, effectively moving them closer to turquoise organizational models, whether that was the original goal or not.

Decentralization seeks to enhance decision-making speed and accountability by deeply involving employees in processes. Transfer pricing should be no exception. Depending on the size of the company, subsidiaries in different countries may create their own TP function or collaborate with local TP consultants. This fosters a more objective application of the arm’s length principle, as each party to a transaction can conduct its own TP analysis.

However, in practice, transfer pricing is often approached using a single method, typically testing only one side of the transaction. Decentralizing the TP function or hiring multiple consultants can lead to higher costs and risks, such as differing methodologies. Even within the Big4, two separate consultants in the different countries may produce slightly different results for the same transaction. Should tax authorities exchange this information, it could create risks for one of the parties.

In cases where consensus on the method is reached, enhanced communication and structured documentation process can help avoid additional costs. Where differing viewpoints arise, dialogue, mediation, and the use of complementary methods can often resolve issues. Divergent approaches do not automatically indicate non-compliance, but they serve as an early warning that additional analysis is required—an insight that, under a more centralized structure, might only surface during a tax audit.

Transfer pricing plays a pivotal role in ensuring that intercompany transactions reflect those between unrelated entities. Therefore, TP should be at the vanguard of this decentralization process.

The strength of decentralization lies in its ability to provide flexibility and empowerment. But without transparency, decentralization risks becoming chaotic rather than efficient.

Transparency: The Backbone of Trust in Turquoise Companies

Transparency is not merely a corporate buzzword; in turquoise organizations, it is the foundation for accountability and trust, both internally and externally. Financial reporting and decision-making in these companies are open and accessible, fostering confidence among stakeholders and tax authorities alike. Yet, there’s a growing problem—the number of “independent” companies used as benchmarks in transfer pricing studies is shrinking. According to data from Moody`s BVD TP Catalyst, the number of independent companies (A+, B-) has decreased by 2,0% by numbers and by 2,7% relatively to all know value (A,B,C,D) in the last five years. This is a stable trend that limit the pool for comparative analysis [2].

Against this backdrop, turquoise corporations, with their high standards of transparency, may themselves become valuable benchmarks for transfer pricing analysis alongside independent companies. Companies that uphold rigorous transparency standards, have undergone public tax audits, and resolved disputes could supplement the dataset, improving both the quantity and quality of TP analysis.

Adaptability: Staying Agile in a Dynamic Environment

Turquoise organizations are built to thrive on adaptability. Decentralization gives each subsidiary or legal entity greater responsibility, enabling them to swiftly adjust to new risks and opportunities. Functions and risks within a turquoise organization evolve rapidly. A department that once handled routine tasks could, overnight, become a value-creation hub. This level of adaptability requires companies to regularly update their functional analysis for transfer pricing purposes. Without frequent updates, the dynamic nature of these businesses may lead to inaccuracies in TP evaluations, misaligning the function with the organization’s actual activities.

But it’s not just about flexibility. The beauty of turquoise organizations lies in their ability to function as a living organism—a strategy that connects all elements together, ensuring the business operates in harmony.

Strategy of Operating as a Living Organism

At the heart of turquoise organizations is the idea that they function as a living organism, where all parts move together seamlessly. A central feature of turquoise organizations is their strategic goal to operate as a unified, living organism. In his book Other Minds (2016), Peter Godfrey-Smith describes how living organisms began forming groups to maximize their capacity to gather energy, such as sunlight, from the environment. The role of certain cells as a central nervous system was a temporary evolutionary step, driven by competition and predator-prey dynamics. Meanwhile, decentralized nervous systems, like those found in octopuses, demonstrate significantly greater cognitive and creative potential.

Similarly, turquoise companies use decentralized structures to respond to external changes with flexibility and intelligence, fostering innovation and creativity at every level.

In such organizations, transfer pricing is more than just a regulatory requirement—it becomes part of the fabric that ties the entire company together. A detailed analysis of internal functions and external comparisons helps ensure that financial flows between subsidiaries align with market conditions. But beyond that, TP ensures that each part of the company plays its role in the larger whole.

This holistic approach to transfer pricing reflects the philosophy of turquoise organizations. TP should not be the isolated responsibility of a specialized team—it must be embraced across the company.  This does not mean that every employee needs to become an expert in TP guidelines. However, in a meeting where services are being sold with almost no margin, someone should ask, “But what about transfer pricing rules?”—and other should respond, “Good point, let’s check with our consultant!”

Transfer pricing in turquoise organizations is not only about compliance—it’s about integrating financial strategy with the principles of transparency, adaptability, and decentralized management. In this way, companies can stay agile, transparent, and strategically aligned in a fast-changing world.

1. Frederic Laloux’s Reinventing Organizations. 2014
2. TP Catalyst database VL, L, M, September 2024
3. Peter Godfrey-Smith, Other Minds (2016),