Transfer Pricing Documentation Myths

Learning Centre • Transfer Pricing Documentation Myths

Transfer Pricing Documentation Myths

Let's talk about TP documentation. We’d like to point out the effort associated with it and will try to highlight key reasons why it is so important.

Myth #1. TP documentation is waste of time

Quite a lot of people think that tax authorities use TP documentation to simply tick the penalty box and then send them into a shredder because, from their perspective, it's biased anyway. But if it has been written with such purposes or expectation, it probably will end up in a shredder pretty soon.

TP documentation is your first chance to explain yourself and, sometimes, educate tax authorities about things they don't know or don't understand in your business. If it is written in a clean and simple language, it will help you a lot. It will be used in your defence, not the other way around.

Myth #2. Writing TP documentation is a normal and lengthy process

Partially due to myth #1, we don't like writing it. We usually put way too much effort in it to end up getting results.

But first, learn from the business. Get educated. Learn what do know. Then, create your own fact-based story. Tell the story of how company Z is making money in countries X and Y.

Myth #3. TP documentation is best to outsource

This is likely a consequence of the first two myths. When outsourcing, in-house teams are losing an incredibly valuable opportunity to communicate with their colleagues and expand their network within the company.

For some people, it can get a bit scary talking about their experiences with prospective employers. But it doesn't have to be. Your job is just to ask compelling questions and listen carefully. In fact, my strong advice is to always take a Dictaphone to interviews, so that as soon as you finish interviewing someone, you can go back afterwards and listen to the conversation again. You might hear things the second time around that you missed the first time. And those gems are the difference between good hires and great hires.

Myth #4. TP documentation has to be long and comprehensive to ensure quality

It all depends on how long your content is and how many points you need to make. If you have multiple lines of business, I would split it into separate files to start with. Master file could easily fit into exciting 50 pages of reading with pictures.

Myth #5. There is a magical technical solution for creating TP documentation

I wish I had a tool that would let me write country-by-country reports efficiently, but so far I've never found one. In my experience, most technical solutions are project management tools, allowing to break up the country-by-country reporting process into stages and track various sources of information. At the content writing stage, though, you still have to do it manually.

After all this hard work, you would hope that a transfer pricing documentation of a company is now safe. Unfortunately not. TP documentation merely shows that a company's intercompany prices comply with the arm's length principle; it does not mean that tax authorities will agree with them.

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