What is the difference between a defence file and my transfer pricing report?
The report states the position. The file is the evidence behind it. A documentation report explains the method, the comparables and the conclusion; a defence file holds the emails, the time records, the board minutes and the invoices that show the conduct actually matched the policy the report describes. Auditors rarely dispute that a report exists. They ask whether the business ran the way it says. That question is answered out of the file, and if the file was never assembled, it is answered by whatever the group can find under time pressure.
An auditor has asked for our transfer pricing records, so what do they want?
Beyond the report itself, they want the material that corroborates it. Who did the work, where those people sat, what they were paid for, what was agreed and when, whether the invoices follow the agreement, whether the agreement follows what anyone actually did. If the file exists, answering is a document delivery. If it does not, it becomes a reconstruction carried out against a deadline, usually by people who were not there at the time, and the gaps found in that exercise are the same gaps the auditor will find.
How do I prove that we followed our own transfer pricing policy?
With records created at the time, not explanations written afterwards. A cost-plus service charge is supported by time records and a description of what the staff did. An intercompany loan is supported by the minutes of the decision and the evidence of the terms being observed. A distribution margin is supported by the pricing decisions and the correspondence around them. None of this is exotic material; it is ordinary business documentation that becomes hard to obtain once the people have moved on and the systems have been replaced.
Should I build the defence file before an audit or wait to be asked?
Before, for two reasons that have nothing to do with being tidy. First, the response to an enquiry becomes a delivery of documents rather than an investigation into your own past, which changes both the cost and the tone. Second, assembling the file tells you where your position is weak while you can still do something about it — re-paper an arrangement, correct an invoicing basis, or decide what a realistic settlement looks like. A weak point you have already identified is a negotiating position. Found by an auditor, it is a finding.
What records should we be keeping for intercompany charges?
Keep what shows the conduct, not just the conclusion. The intercompany agreements and any variations, the invoices and the basis on which they were calculated, time or activity records for services, board and management minutes for decisions such as funding or a change of function, and the correspondence in which the commercial terms were discussed. Keep them against the year they belong to, so that a later request can be answered by year. The habit matters more than the volume: material collected as it arises is material you still have.
What do I do if the file shows our policy was not followed?
Deal with it while it is still your own discovery. The usual findings are mundane: invoices raised on a superseded basis, a function moved without the agreement changing, a charge nobody can evidence. Each has a response — correcting the intercompany accounts, re-papering the arrangement to match what is actually done, or dropping a charge that cannot be supported. Doing that before an enquiry converts a contested adjustment into a corrected position. It also lets you judge what a settlement should look like, rather than reacting to a number someone else has put on the table.
What is a double tax treaty and what does it actually do?
It is an agreement between two countries that divides up the right to tax. Article by article it decides which country taxes employment income, dividends, interest, royalties, pensions, property and business profits — and where both may tax, it caps what the source country can withhold and tells the other to give credit. It also breaks residence ties and opens a government-to-government channel for disputes. What it never does is apply itself: a treaty position is claimed. See our treaty work.
What is a totalization agreement and how do I use one?
A social security agreement that stops you contributing to two systems for the same work, and lets periods in both count towards benefit eligibility in either. Which system you stay in depends on the agreement's rules for your situation — a seconded employee usually remains in the home system for a set period, a locally hired one usually joins the host system. You evidence it with a certificate of coverage obtained before or shortly after the assignment starts. See certificates of coverage.
