With the recent focus on profit shifting around the world, transfer pricing has become one of the biggest international economic issues faced by companies. An issue however, that is rarely understood beyond the CFO of most major companies. With transfer pricing currently making weekly headlines, directors and company boards have never been keener to gain an understanding of this complex issue.
The challenge has been thrown down. How do we best simplify key points around transfer pricing? We think we’ve found the answer. Pizza. (Stay with us!)
If transfer pricing was a pizza, what would be the main ingredients to consider?
Contracts – This is the dough of the business (pardon the pun). It formalises the international related
party dealings with written contracts (or at least an email) to provide evidence of negotiation between parties being at arm’s length. It’s
important to remember that contracts are not the same as TP documentation.
TP Policy: This is the basil. Enhancing everything around it, it will assist companies with understanding the transfer pricing position, risks and pricing between the group companies.
TP Documentation -The most regarded ingredient, the cheese. This is the best tool for taxpayers to defend
and make their arguments ‘stick’ in the event of a transfer pricing audit. Documentation should be prepared before the lodgement of income
tax return. Without documentation, your company doesn’t have a reasonably arguable position, which will result in no penalty reduction come
International Dealings Schedule (IDS) and Related Party Foms - This is the sauce, keeping everything
together. It’s important that the IDS is completed correctly and is consistent with the transfer pricing documentation (e.g. transfer
pricing methods, total amounts, etc).
Base Erosion and Profit Shifting BEPS: Like the shifting of olives, transferred from one pizza to another, the disliked olives (tax) ends up in one place, and a little discarded along the way. Companies need to keep up-to-date with the developments from the OECD (Organization for Economic Cooperation and Development) on BEPS. Every country in the Asia Pacific region has implemented Action 13 Transfer Pricing documentation. Therefore MNEs will need to keep track about the countries that require preparation of Country by Country Reports, Master File or Local File.
If you required assistance with your ‘transfer pricing pizza’ please contact Transfer Pricing Solutions
+61 (3) 59117001