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A brand new year will start shortly, which is the perfect time to consider improvements to your Transfer Pricing (TP) Documentation. Companies often consider TP Documentation merely as a mandatory compliance exercise. It is however a great way to identify TP risks and opportunities.
Through our TP Documentation services and software, we annually support companies preparing thousands of Local Files. Based on our experience, this is our Top 10 of improvements to TP Documentation:
1️⃣ Include ALL Master File / Local File data recommended by the OECD and include (material) additional data required under local regulations. Check out Annexes 1 and 2 to Chapter V of the OECD Transfer Pricing Guidelines and various great online resources on local transfer pricing regulations.
2️⃣ Prepare consistent documentation across your organisation by using data from a central source / tool, such as Reptune.net. Manual changes often lead to discrepancies.
3️⃣ Address the documentation to external readers, so avoid internal abbreviations and provide sufficient information about the business. The number of times we have seen documentation not describing an organisation’s key processes…
4️⃣ Strike a balance between (too) short & practical and (too) long & theoretical documentation. Bear in mind that a lot of data is required to prepare solid documentation. 25 pages won’t cut it.
5️⃣ The days of the one-sided functional analysis are looong gone. Analyse the functions, assets and risks of all parties to a transaction.
6️⃣ In that same functional analysis, be clear about who does what. Don’t refer to teams, departments, divisions and business units without indicating to which legal entity or entities they belong.
7️⃣ Compare the tested party’s ACTUAL result against benchmarks (in case of cost plus, resale price and transactional net margin methods). There isn’t much value in testing a TARGETED profit.
8️⃣ Segment the profit and loss account of the tested party if an entity has multiple distinct activities, which require judgment on their own merits. This can be a tedious task, but it has to be done.
9️⃣ Include intercompany agreements or inform the reader how they can easily be obtained. The contractual terms are the first comparability factor.
1️⃣0️⃣ Identify and analyse transactions individually, unless there’s a good reason to combine their analysis.
Reptune can help you with your Transfer Pricing Documentation needs. Whether you’re an in-house transfer pricing team or you would like to outsource your transfer pricing, we are here to assist you. Get in contact with one of our experts today!
