Transfer pricing rules are not fully prescriptive, but rather they provide a collection of guidelines and principles
for transfer pricing compliance.
The Organisation for Economic Co-operation and Development (“OECD”), a key player in the area of international taxation, notes transfer
pricing is not an exact science, and this represents a window of opportunity for tax authorities to impose transfer-pricing adjustments
and recalculation of taxes to be paid. This, together with fiscal shortfalls, has encouraged governments to identify transfer pricing as a
soft target with the potential to produce large tax revenues.
When it comes to transfer pricing, ignorance is not bliss. Failure to act could cost a company hundreds of thousands of dollars in legal
fees, interest, and penalties. Even what may appear to be a harmless intracompany management fee may attract the attention of the tax
authorities who could challenge the amount of the fee or even its deductibility if it’s not adequately priced and/or documented.
Transfer pricing has certainly been subject to challenge by tax authorities in the past. But if it’s properly documented and
approached, results will stand up to audit.