February 2016

Transfer Pricing Report, Between Necessity and Utility

The preparation of the transfer pricing report should not be seen only as a legal requirement imposed on companies which if omitted or containing incomplete information generates fines from the tax inspection team. The file has also an impact on the company’s KPIs, investing and operational decisions, cash flow and tax on profit as it is a management tool often use by top professionals.   The transfer pricing report is an instrument of protection to argue that related party transactions have economic substance and were conducted at the market price.   The rationale and justification prices in commercial and financial transactions with related parties protects us against transfer pricing adjustments.   These transfer pricing adjustment are usually established after the so-called "background checks" performed by tax inspectors, which can be performed on a large number of years, generating besides income tax, additional interest and penalties. Also we cannot ignore the usefulness of the exception report for managers that are most interested in knowing where to position the prices used in party transactions. Such information is found in the price comparability section which is a fundamental requirement of the preparation of the transfer pricing report.