Transfer Pricing – year end is approaching, is this something I need to think about?

By Melanie Meyer & Lucy Scanlon

March and June are our most commonly used balance dates, and with March year end approaching and the end of June quick to follow, it is useful for businesses think about their transfer pricing positions to ensure financial accounts/income tax returns reflect an arm’s length position. Here are some key things to think about:

Does transfer pricing apply to my business?

You will need to consider your transfer pricing position if there are cross border transactions with associated parties. Any cross border associated party transactions will need to be undertaken on an arm’s length basis, which means the transactions must be priced as if the transactions were between two independent third parties.

How do I determine/support the cross border transactions have been undertaken at arm’s length?

There are standard transfer pricing methods which Inland Revenue (and all OECD countries) anticipate are applied to support the arm’s length nature of the transactions. Inland Revenue then expect taxpayers to prepare transfer pricing documentation to demonstrate the application of those methods and the resulting arm’s length outcome. Preparing transfer pricing documentation in line with Inland Revenue expectations on a contemporaneous basis (before the tax return for the year is filed) provides penalty protection to the taxpayer, i.e., if Inland Revenue determine a different approach/outcome which results in a different tax outcome, the existence of transfer pricing documentation demonstrates reasonable care in taking the position filed.

What if my transactions are small. Do I still need to prepare transfer pricing documentation?

Transfer pricing documentation should be prepared to support all cross border associated party transactions. However, Inland Revenue expect the documentation prepared by taxpayers to be in alignment with the risk, complexity, and materiality of the transactions. While each transfer pricing document prepared should cover off key components required of a transfer pricing document, the level of the documentation prepared should be tailored to the specific circumstances of the taxpayer.

If I need to consider my transfer pricing position, what should I do now?

Please reach out to your Deloitte advisor so we can help you determine the right transfer pricing approach and appropriate level of transfer pricing documentation for your circumstances. By considering your transfer prices pre-year end and having a discussion up front, you can ensure your financial statements align with a robust and supportable transfer pricing position. This then makes the process of transfer pricing compliance a lot easier - the right approach for you could range from intercompany agreements and transfer pricing calculations through to full technical transfer pricing compliance documentation or options in between. Our specialist transfer pricing team is very experienced across the spectrum of appropriate approaches/documentation and with a chat can guide you to the most practical solution for your current business operations.