Challenges in transfer pricing (TP) documentation

By Ashish Bairagra,M. L. Bhuwania & Co.

While TP regulations evolve around the world, it is extremely difficult for companies to judge the expectations of the tax authorities with respect to TP documentation. The need to defend the arm’s length price of transactions in the TP documentation has increased due to the intense global spotlight on what is now called “Base Erosion and Profit Shifting” (BEPS).

The main challenges faced by companies while preparing TP documentation include:

  1. Whether to prepare the document internally or with the help of an external professional
  2. Whether the TP documentation prepared on a global basis complies with the requirements in each country
  3. Whether the cost of creating and maintaining the documentation offsets the risks associated with the transactions
  4. Obtaining the information required to conduct a functions, asset and risk (FAR) analysis of the transactions
  5. Co-ordinating the tax, finance, operations, supply chain and other departments to obtain the necessary information for benchmarking purposes
  6. Deciding which entity should be the tested party in a web of transactions
  7. Finding or selecting comparables for transactions that are unique or niche to a company or to its business

Under the BEPS Action Plan, the OECD is expected to release rules for TP documentation which will pave the way for tax authorities and companies around the world to decide what and how much will be considered “enough” when it comes to TP documentation.

Ashish Bairagra
M. L. Bhuwania & Co., Mumbai, India
T : +91 98 194 33 693
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M L Bhuwania & Co. is an organization dedicated to offering professional services by employing some of the best brains in the industry, who collaborate to provide audit, consulting, financial advisory, risk management, and tax services to clients. The firms' diversified client profile across industries has helped the firm build its capability to advise clients in the dynamic and challenging environments in which clients do business.

Ashish Bairagra is a Partner of M. L. Bhuwania & Co. and is responsible for International Taxation, Internal Audits and Consulting assignments of the firm.

published: June 2014

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