Looking for some help with your transfer pricing exposures? Look no further! Down below you will find 10 best practices to minimize exposure. These best practices do not involve any changes to your business operations or transfer pricing methods, and do not require changes to your valuations. Follow these 10 best practices your company should adhere to, to ensure no unnecessary fines are incurred.
#10 ENSURE TRANSFER PRICING DOCUMENTATION IS ACCURATE
It is vital to have a transfer pricing report in a company’s transfer pricing maintenance. This report states the transfer pricing policy and why the company follows it. This transfer pricing policy is important to have and maintain to ensure local tax authorities and various stakeholders in your company are informed. This document must include all information and ensure no significant party transactions are missing, as it opens your business to a degree of exposure. To ensure the document is accurate, you must ensure it is clearly double checked and free of any errors.
It is also important to list transactions that don’t exist. For example, if intellectual property is a big part of the job sector you are working in, but there are no internal royalty or license fees, your transfer pricing documentation should list this information and why the information is missing.
#9 DIFFERENT STORIES IN DIFFERENT COUNTRIES
If a transfer pricing documentation is being drawn up on each side of the border during a transaction by two companies in separate countries, this documentation should be made available to each party. Usually, each party will have different information in their transfer pricing reports that can easily be addressed if both parties share their documentation. If you need any help with this type of sharing of information, Masterfile’s new OECD transfer pricing standard would be a great tool to use.
#8 KEEP YOUR RECORDS UP-TO-DATE
To ensure your transfer pricing system is up to date, various information is required from different departments in your company. Information such as tax return filing dates, VAT and duty, and document due dates need to be filed and kept up-to-date. If your company follows these standard acts of practice this will ensure the completion of the transfer pricing without any problems. If your company is dealing with a transfer pricing dispute this will also create additional exposure that can easily be mitigated with up-to-date records
#7 VERIFY FORMS ARE PROPERLY FILLED OUT
Ensure all forms are filled out correctly with no mistakes. To ensure this form is completed in full, companies need to ensure all party transactions are included. Problems arise on the form when material transactions are missing, reconciliations between the transfer pricing report’s are inaccurate or the method of the transfer is reported incorrectly. Your company should be extra diligent when completing this form as there are significant penalties if the form is completed incorrectly.
#6 CONFRONTATION DURING AN AUDIT
If your company receives a transfer pricing audit and the audit becomes confrontational, there is a greater risk of exposure during this type of audit. There are various ways to avoid or reduce the confrontation. For example, if an auditor requests additional information from your company, a best practice is to follow-up with the auditor once you receive the request to show the auditor you are taking the audit seriously. To ensure the audit is processed smoothly, it is best to respond to the auditor as soon as possible with any additional information they request. This will ensure a smooth audit for both parties.
#5 MISCOMMUNICATION TO TAX AUTHORITIES AND TRANSFER PRICING AUDITORS
Tax authorities sometimes spend a lot of their resources reviewing your transfer pricing policy. However, if during this analysis they lack communication with your company, the risk of their finding’s not being accurate to your company’s information drastically increases. To ensure your company passes the audit and does not have to be re-assessed, communication with your auditor and providing them with the necessary information as soon as possible is vital to the audit’s success.
#4 WAYS TO RESOLVE DOUBLE TAX
During a transfer pricing reassessment, your company might be left with having to pay double taxes. Further exposure is created when companies try to resolve the double taxation by making changes in a future year in another jurisdiction. At times, these companies might try to adjust a prior tax year’s return without going through the proper channels. If these types of practices are being done and are discovered by tax authorities, the department will not tolerate such actions and the company is at risk of receiving permanent double taxation.
#3 BE CONSISTENT WITH YOUR CUSTOMS AND DUTY DECLARATIONS
It is vital to ensure that your customs department works competently to ensure international transactions are free of error and contain consistent information.
#2 MAINTAIN INTER-COMPANY LEGAL AGREEMENTS
It is now even more important to ensure Inter company legal agreements are up-to-date due to the recent OECD transfer pricing guidelines update. In addition to their standard internal training, the IRS and other organizations around the world are responsible for ensuring the legal agreements of both parties reflect the accurate action of business related to the transaction that is under audit. The auditors are now spending a greater amount of time auditing these agreements as they have noticed that both parties are updating agreements through email. Ensuring your legal agreements are up-to-date will ensure a smooth and seamless audit.
#1 UPDATE STAKEHOLDERS ON AN ANNUAL BASIS
To ensure your company does not get fined for inaccurate documentation, it is a best practice to review and update any documents on an annual basis. These types of errors occur when companies prepare their documentation for the year but then forget to update it throughout the year. A best practice to uphold to ensure this information is up-to-date is to send out annual letters displaying financial data in between the period before sending the full transfer pricing report.