The objective of any transfer pricing documentation is to demonstrate that your:
- transfer pricing processes are of a high quality and appropriate (price setting processes); and
- financial outcomes are appropriate or arm’s length (price testing process)
Documentation is the best way to evidence that the contents of your tax return are correct, that your related party transactions are undertaken on arm’s length basis and are therefore in accordance with the local transfer pricing requirements.
Your transfer pricing documentation should consist of:
- Background to company / group
- Functional and industry analysis
- Characterisation of the tested party
- Details of related party transactions
- Details of pricing methods for related party transactions
- Financial results of tested party
- Selection of most appropriate method to test results
- Application of most appropriate method (benchmarking)
- Analysis of financial results
- All relevant supporting materials, including legal agreements and policy documents
Given that transfer pricing is a multilateral issue, it is often approrpiate to manage a taxpayer’s position from either a regional or global perspective. Crowe Horwath has developed its global transfer pricing Masterfile service. A Masterfile can be retained and maintained in one location and will contain all of the transfer pricing documentation necessary for you to (i) manage your transfer pricing positions across the region or the world; and (ii) meet your compliance requirements in each country in which you operate. It also enables you to establish the most appropriate transfer pricing arrangements in any new territory in which you commence operations.