Braxton Consulting

Why international transfer pricing when the main concern of transfer pricing is already international?

A major and growing problem for the directors of multinationals is the issue of preparing documentation to demonstrate compliance with transfer pricing rules. More and more countries have established documentation rules that require companies to state clearly and with supporting evidence why their transfer pricing policies comply with the arm’s-length standard. Many jurisdictions have adopted penalty regimes to help achieve compliance with these new procedures. The problem is that each country expects something slightly different in the way of documentation. These conflicting pressures need very careful
management, both to contain the burden of compliance and to avoid costly penalties.

Which is the risk of adjustments?

As more authorities demand documentation to support transfer pricing, and establish aggressive audit teams to review compliance, the risk of material adjustments becomes greater. For many years, companies accepted small adjustments as the price necessary to be paid to get rid of the tax auditor. Adjustments are now potentially so material that companies cannot simply pay the tax and take no further action. These developments are reflected in increasing use of mutual agreement procedures under bilateral double taxation
agreements, or the Arbitration Convention with the European Union, in order to seek relief from double taxation. This in turn demands a more controlled and organised approach to handling the audits as they take place, to ensure the process is efficient and that any areas where the transfer pricing system is deficient are corrected rapidly.