Transfer pricing developments were significant in 2022, including refocused IRS scrutiny partially stemming from increased IRS resources included in the Inflation Reduction Act of 2022 and continued and evolving global tax reform (for example, Pillar 2 of the Organization for Economic Cooperation and Development (OECD) framework). As a result, it is crucial for multinational companies to proactively review the framework used for its transfer pricing documentation well in advance of their statutory tax filing dates.
Following are five important considerations to keep in mind to prepare comprehensive, accurate, and compliant transfer pricing documentation:
Taxpayers should take steps to outline in their documentation the commercial and business reasons for the outcome of transactions that on their face might not seem to be at arm’s length.
Having comprehensive depth will help the documentation be robust enough to withstand scrutiny by tax authorities during an audit.
Considering these five key aspects of transfer pricing documentation (scope, depth, consistency, economic substance, and process) can jump-start a company’s efforts to evaluate its transfer pricing documentation and compliance activities. By incorporating these five key aspects of transfer pricing documentation, companies can prepare comprehensive transfer pricing documentation and minimize their risk of penalties, interest, and other adverse consequences in the event of a tax audit.
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