Why Transfer Pricing Should Matter For CFOs

Learning CentreWhy Transfer Pricing Should Matter For CFOs

Why Transfer Pricing should matter for CFOs.

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.