Transfer Pricing Risk Management
In order to avoid pitfalls with your transfer pricing position, you need to assess whether your transfer pricing policies and practices are:
1. Well considered, documented and appropriate
Are your transfer pricing policies and practices founded in sound economic principles and supported by a detailed analysis of your entity's specific facts and circumstances?
2. Reflective of the economic substance of your operations
Are your related party transactions taxed in accordance with the economic substance of the arrangements between the parties?
3. Practical, flexible and manageable
Do your policies and practices provide you with the flexibility to make amendments when new transactions arise or corrective actions need to be taken? Are your legal agreements appropriately worded to enable you to manage both operational and tax compliance aspects of your business?
4. Appropriate and minimise tax risk
Was adequate consideration given to ensuring that the arrangements are both appropriate given your functions, assets and risks profile and minimise your tax risks?
5. Reviewed on a regular basis
How often do you review the appropriateness of your transfer pricing policies and practices? Have there been changes in your business recently? Are your policies and practices still appropriate in the context of those changes?
A robust transfer pricing risk management protocol will review your specific business circumstances, evaluate your transfer pricing risk exposure and assist you to mitigate and manage those risks, both from an historic and go-forward perspective.