Introduction
Transfer Pricing audits consist of reviewing whether the determination of income tax is correct and whether there is no omission of the taxpayer’s tax obligations to the State concerning those transactions subject to the application scope of the Transfer Pricing rules. These audits can significantly affect the operations of multinational companies, so adequate preparation and knowledge of best practices can minimize the associated risks and ensure regulatory compliance.
Importance of Preparation
Preparation is essential to a successful Transfer Pricing audit. Ensure all documentation is updated and compliant with local and international regulations. Consistency and accuracy in documentation are critical to avoid discrepancies and questioning by tax authorities.
Effective Preparation Process
- Establishment of Transfer Pricing Policies:It is advisable to have policies in place to support current or future related party transactions subject to the application scope of the TP rules.
- Defense File: Every entity in all jurisdictions should start preparing a Defense File, especially when operating results are affected by particular situations.
- Preliminary Analyses: Before the closing of fiscal years, prior month closings should be analyzed to monitor results and take preventive actions.
- Industry Comparisons: The evaluation of the industry results is essential to demonstrate the companies are aligned with the current situation of the sector where they perform their business activities.
- Supporting Documentation: In all cases, all supporting documentation (contracts, invoices, accounting records, etc.) must be available to be prepared for questioning by the corresponding Tax Administrations.
- Segmentation of Financial Information: The accounting records of related party transactions should be controlled to allow an individual analysis of transactions, where necessary, based on the segmentation of financial information.
Expertized Collaboration
Working with Transfer Pricing experts can be an ideal complement to risk mitigation. Specialized consultants can advise on best practices, assist in preparing appropriate documentation, and offer support during audits.
Advantages of Expertized Collaborating
- Specialized Knowledge: Access to in-depth and up-to-date knowledge of Transfer Pricing regulations.
- Customized Strategies: Development of Transfer Pricing strategies tailored to the specific corporate needs.
- Audit Support: Direct assistance during audits to handle queries and file documentation effectively.
Call to Action
Is your company prepared for a Transfer Pricing Audit? At TPC Group, we have the experts and tools to assist you in mitigating risks and ensuring regulatory compliance. Please contact us today for a free consultation!
Source: OECD
