Inland Revenue clarifies transfer pricing documentation expectations

By Bart de Gouw & Liam O’Brien

In a further example of Inland Revenue’s increased focus on transfer pricing (see also our Tax Alert articles from February 2026 and September 2024), Inland Revenue recently updated the transfer pricing documentation guidance on its website.

The guidance has been updated to more clearly articulate Inland Revenue’s expectations that New Zealand taxpayers (which includes subsidiaries/branches of overseas headquartered multinationals) are now expected to maintain sufficient transfer pricing documentation.

Inland Revenue’s communications on this update suggest that it has been compelled to revise its transfer pricing documentation guidance based on what it is seeing in recent risk review and audit activity, including through the 2025 Transfer Pricing Documentation campaign, which was launched in October 2025.

What is ‘sufficient’ transfer pricing documentation?

Inland Revenue’s updated guidance provides a detailed overview of expectations regarding ‘good’ documentation packages. Critical elements include:

• Detailed functional analysis: Good documentation includes a detailed analysis of the functions performed, assets used and risks assumed by the relevant parties to a cross-border associated party transaction. The updated guidance emphasises, in particular, that the functions, assets and risks regarding relevant intangible assets are addressed and that further consideration needs to be given to risk assumption (Inland Revenue’s observation is that transfer pricing documentation often states which entity bears risk without a clear rationale supporting the statement).
• Local facts and circumstances: The guidance is clear that where material local facts and circumstances are omitted, or materially differ from the position documented in the centrally prepared documentation, the local documentation will be inadequate. Documentation prepared for New Zealand taxpayers should accurately reflect the facts and circumstances relevant to that taxpayer. Inland Revenue makes it clear that local management are best placed to review and confirm the factual accuracy of the New Zealand documentation.
• Timely preparation: New Zealand’s tax system operates on a self-assessment basis, where the taxpayer is expected to keep sufficient records to support its tax positions. From a practical perspective, transfer pricing documentation, therefore, should be prepared prior to the filing of the annual income tax return to support the transfer pricing positions taken by the taxpayer during the income tax year. In addition, Inland Revenue notes that taxpayers are required to provide documentation on request (which may occur as part of a risk review or audit) and it is not Inland Revenue’s practice to allow extensions to enable the preparation of documentation for the purposes of responding to a request from Inland Revenue.
• Regular review: New Zealand taxpayers should be reviewing transfer pricing policies on a regular basis to ensure that cross-border associated party transactions continue to be priced in accordance with the arm’s length principle. It is good practice to perform this review on an (at least) annual basis and the annual preparation and/or update of the company’s transfer pricing documentation is a good way of maintaining this discipline.

What are the consequences of not having ‘sufficient’ transfer pricing documentation?

Inland Revenue’s guidance notes that the potential consequences of not having sufficient transfer pricing documentation include an increased risk of audit and the impost of shortfall penalties in the event of a transfer pricing adjustment.

In particular, the guidance provides that:

“As the burden of proof for transfer pricing matters rests with the taxpayer, a lack of adequate documentation may make it difficult for the company to rebut an alternative transfer price proposed by us”

and

“If we make transfer pricing adjustments, the quality of supporting documentation will be a key factor in determining the extent to which penalties might apply. A failure to prepare adequate transfer pricing documentation or acceptance of pricing that is clearly inappropriate could result in a 40% shortfall penalty for gross carelessness if apparent problems involving material associated party transactions are simply brushed over or even ignored.”

The explicit reference to the 40% shortfall penalty for gross carelessness in the updated guidance is a clear indicator of Inland Revenue’s heightened expectations of New Zealand taxpayers regarding the quality of documentation.

What can taxpayers do?

Inland Revenue’s updated transfer pricing documentation guidance further emphasises the importance of proactively managing transfer pricing positions and preparing supporting documentation, particularly in the current environment where Inland Revenue is sufficiently resourced to interrogate taxpayer positions.

For many New Zealand companies, this updated guidance will continue to support their established processes to review and update their New Zealand specific transfer pricing documentation on an annual basis, whilst for others, it will be a timely reminder that an uplift in their transfer pricing documentation is overdue.

If you have any questions on how to best manage your transfer pricing positions and prepare transfer pricing documentation, please contact your usual Deloitte advisor.