Do I need transfer pricing documentation if my intercompany charges are small?
Size is the wrong starting point, and it is where most groups go wrong. The requirement generally turns on whether a transaction with a related non-resident happened at all, not on how large it was, and in some countries a single intercompany invoice is enough to bring it into play. There is also a second reason not to reason from value: what documentation buys you in many jurisdictions is protection against penalties, and penalty exposure is a function of the adjustment a reviewer could propose, which is not knowable in advance. Establish whether the transaction is caught, then consider proportionality.
My company has only one transaction with its parent — is documentation needed?
Quite possibly. Requirements differ by jurisdiction: some ask for contemporaneous documentation as a condition of penalty protection, others impose a mandatory report regardless of value. Under either model one transaction with a related non-resident can be enough, because what is being tested is the pricing of that dealing and not the scale of your operations. The one transaction cases are also the ones most often left undocumented, on the reasoning that there is nothing to write about. There is: the dealing has to be described, the parties' roles set out, and the basis of the price supported.
Does transfer pricing documentation have to be prepared before the year end?
In the jurisdictions that treat documentation as a condition of penalty protection, the requirement is for it to be contemporaneous, which is a timing condition and not just a content one. Documentation assembled after a reviewer asks for it may still be useful evidence, but it does not necessarily give you the protection the rule offers to a group that had it in hand. Elsewhere the obligation is a mandatory report with its own filing date. Either way the deadline is not the day the question is asked, which is when most groups first look at the subject.
What happens if my information return says I have no documentation?
You have answered the question, and the answer is on the record. The information return you file usually asks whether documentation exists, which means the position is disclosed either way and does not depend on anyone examining the file to come to light. That has two consequences worth thinking about. A negative answer is visible and is the kind of thing that informs how a file is looked at. And an answer that says documentation exists when it does not is a different and more serious problem than not having it. Answer accurately, then fix the underlying gap.
Does a management fee charged by my foreign parent need documentation?
A charge from a related non-resident is a transaction with a related non-resident, so start from the assumption that it is caught and then check the jurisdictions involved. Management and service charges attract attention because they are easy to invoice and hard to evidence: what was actually done, for whom, and why the amount corresponds to it. That is precisely the ground documentation covers. If the intercompany agreement is thin or missing, deal with that first, because documentation supporting a price under an agreement nobody can produce carries very little weight.
Do I need documentation in both countries or only in one?
Assume both sides need to be satisfied and then check what each actually asks for, because requirements differ. One country may treat contemporaneous documentation as a penalty-protection condition while the other imposes a mandatory report irrespective of value, with different content and different timing. The economic analysis of a single dealing does not need doing twice, but the deliverables usually do, and they must not contradict each other. Two files describing the same transaction in incompatible terms is a worse position than one file, and it is a common result of each side instructing separately.
Do I need transfer pricing documentation?
If your company transacts with a related party in another country, in substance yes — the question is how much. Documentation is what shifts the burden: prepared before the filing deadline it evidences that your pricing was set on arm's length terms, and its absence is what turns a pricing adjustment into a penalty in several regimes. Volume of related-party dealings drives whether you need a local file, a master file, or a full benchmarking study. See do I need transfer pricing documentation.
What are the transfer pricing methods?
Five, in two groups. Three compare transactions: comparable uncontrolled price, resale price, and cost plus. Two compare profits: the transactional net margin method, and profit split. The OECD asks for the most appropriate method on the facts rather than a fixed hierarchy; the United States applies a best-method rule to similar effect. Selection is itself a documented judgment, and a method chosen without recording why is a weak position under audit. See our transfer pricing work.
