Going below the line - New accounting treatment of pension expenses and their transfer pricing impact

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In March 2017, the FASB released Accounting Standards Update No. 2017-17 ("ASU 2017-17") to provide final guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost in the financial statements. In this guidance, the FASB explained certain amendments made to Topic 715 (Compensation—Retirement Benefits) of the FASB Accounting Standard Codification that are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods.

Transfer pricing impact

The rationale for performing a pension expenses adjustment for transfer pricing purposes is directly related to the principles driving the amendments made to Topic 715 (the “Amendments”). In particular, the Amendments separated the reporting of the “service cost” component (considered an operating expense) from the other components, which are considered non-operating expenses. 
These other components include the following:

  1. Interest cost,
  2. Expected return on plan assets for the period,
  3. Gain or loss on plan assets,
  4. Prior service cost or credit,
  5. Transition asset or obligation, and
  6. Gain or loss recognized due to settlements or curtailments.

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Marco Fiaccadori

Partner, Transfer Pricing, PwC US

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