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A checklist for managing your transfer pricing strategy

Sowmya Varadharajan
9/19/2023
A checklist for expanding your transfer pricing strategy

Don’t get caught off guard by transfer pricing surprises. Review these five categories as you assess your approach to transfer pricing.

Globalization makes transfer pricing a necessary part of doing business for many organizations today. For a lot of those companies, compliance is the primary – and possibly the sole – driver of their transfer pricing strategy. But by adopting such an approach, companies could be missing out on a range of advantages, from optimizing tax payments to uncovering new sources of cash flow.

To determine how your organization could benefit from a more robust transfer pricing strategy while still meeting compliance requirements, it’s critical to identify your end goals and be aware of the steps needed to make them a reality. Here are five areas that should be on your checklist as you take a broader view of transfer pricing.

A checklist for expanding your transfer pricing strategy

1. Gather key pricing transfer material references

These items might include:

  • Organizational and personnel charts
  • Financial statements for group members, as relevant
  • Related-party transactions summaries, such as workpapers for Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations”
  • Transfer pricing reports, benchmarking sets, memoranda, and provision analyses
  • Intercompany agreements: Loans, services, intangibles
  • Price lists: Tangibles
Note: This is not an exhaustive list and can include other items as applicable.

2. Clearly identify your transaction types

Transfer pricing can apply to many different transaction types, including:

  • Sale and purchase of tangible goods
  • Licensing intangible property, including cost-sharing arrangements
  • Provision and receipt of services
  • Financial transactions

Note: The type of transfer pricing analysis you undertake should depend on the nature of the intercompany transaction.

A checklist for expanding your transfer pricing strategy
A checklist for expanding your transfer pricing strategy

3. Consider the documentation you need – and what it should accomplish

Here are five things to consider when preparing accurate and compliant transfer pricing documentation:

  • Scope: The extent and coverage of the information included in the documentation.
  • Depth: The quality of the analysis and how comprehensive it is.
  • Consistency: The consistency of the story across jurisdictions, across multiple tax years, and with reference to other available documentation.
  • Economic substance: The alignment of transfer pricing policies and practices with the actual economic activity taking place.
  • Process: Clear policies and procedures in place for documenting related-party transactions.

4. Monitor and make the right adjustments to arrive at the right price

Ideally, a company should have the following elements in place to keep track of progress and react as quickly as possible:
  • Transfer pricing reports
  • Benchmarking sets
  • Procedures and policies
  • Detailed intercompany agreements, including contractual terms of related-party and third-party agreements, as well as risks and outcomes
  • Segmented financial information with adjustments booked
A checklist for expanding your transfer pricing strategy
A checklist for expanding your transfer pricing strategy

5. Prepare to defend your transfer pricing policies

The market has experienced greater volatility over the past few years due to shortages and supply chain challenges, global conflict, and increases in inflation and interest rates. These circumstances sometimes create the need to deviate from existing transfer pricing policies.

When deviations occur, you need to be able to justify them. That includes rigorous analyses around anomalies and thorough documentation to explain why a particular situation warranted a different approach.

It’s worth noting that including every transaction in transfer pricing documentation can be costly and excessive. Think about the materiality of intercompany transactions, as well as the value of this information to your business, as you consider what to include.

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Having difficulty getting a handle on transfer pricing?

We know that getting your transfer pricing strategy right is important. If you want more confidence around your calculations, including when to do them or what to do about adjustments, we can help you decide what to adjust in your data, systems, personnel, and processes. 

Crowe is part of the Crowe Global network. Talk to our experienced team to find out how we can work with you to align your transfer pricing strategy with your business.

Sowmya Varadharajan
Sowmya Varadharajan
Principal, Tax
+1 714 668 5374