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Transfer Pricing Docs

Transfer Pricing Docs

Transfer pricing refers to the pricing of goods, services, or intellectual property that is transferred between related parties, such as subsidiaries or affiliates within a multinational company. Proper documentation is crucial for compliance with international tax laws and to avoid penalties.

Here are key components of transfer pricing documentation that you might need to prepare:

Master File

This document provides an overview of the multinational group and its transfer pricing policies. It typically includes:

Organizational structure: Details of the corporate structure, including legal and ownership relationships between entities.
Financial statements: Consolidated financial statements of the group, including balance sheets, income statements, and cash flow statements.
Group business description: Overview of the business activities, business strategies, and financial performance of the group.
Intangible assets: A description of significant intangible assets owned by the group.
Transfer pricing policies: General transfer pricing policies and how they are applied across the group.
Local File

The local file focuses on specific transactions between local entities and their related foreign affiliates. It usually includes:

Detailed financial information: Income statement, balance sheet, and other financial data of the local entity.
Intercompany transactions: A detailed description of the intercompany transactions, including pricing policies, nature of goods/services, and quantities involved.
Comparability analysis: A functional analysis showing the local entity’s role in the transaction (e.g., whether it is a manufacturer, distributor, or service provider).
Transfer pricing methods: Documentation of the transfer pricing methods used (e.g., Comparable Uncontrolled Price, Cost Plus, or Transactional Net Margin Method) and the reasoning behind the choice.
Country-by-Country Report (CbCR)

For multinational enterprises with consolidated revenues over a certain threshold (e.g., €750 million under OECD guidelines), a country-by-country report may be required. It includes:

Financial data by country: Information on revenues, profits, taxes paid, capital, employees, and assets by country.
Business activities: A summary of the business activities in each country.
Transfer Pricing Documentation Compliance Checklist

Some jurisdictions require a checklist to confirm that the necessary documentation has been prepared. This includes ensuring that the documents are compliant with local tax laws and international guidelines such as the OECD Transfer Pricing Guidelines.

Economic and Financial Analysis
Benchmarking: Comparison of intercompany prices with independent (uncontrolled) prices to ensure arm's length pricing.
Profitability analysis: Assessment of profitability based on comparable companies in the same industry and jurisdiction.
Audit Trail and Supporting Documents
Contracts, invoices, agreements, and other transactional documents that demonstrate compliance with the documented transfer pricing policies.
Correspondence or internal memos that discuss decisions related to pricing policies.
Transfer Pricing Policies & Adjustments
A record of any adjustments or changes in transfer pricing policies, reflecting the consistency of pricing mechanisms over time.

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