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The road to an effective compliance strategy

Compliance and, therefore, risk management is becoming more and more  important. In line with these developments Quantera Global organized a webinar about compliance and risk management. In the following, some topics from the webinar and relevant questions with regards to compliance and risk management will be highlighted.

What is Transfer Pricing compliance?

A distinction can be made between formal and material compliance. With formal compliance you meet all the documentation requirements (i.e. Master File, Local File and Benchmark studies) and prevent risks like penalties and the shift of the burden of proof. Material compliance focuses on the transfer pricing (“TP”) design and operational transfer pricing to ascertain that the TP system matches with the business rationale and financial results. In practice, it can be challenging to be both materially and formally compliant. Hence, organizations should ask themselves the following question:

  1. Do I prefer to be a firefighter or to be in control?

Growing demand for compliance

The regulations regarding compliance are getting more stringent. As a result, the subject is becoming more and more important among tax authorities in many jurisdictions. Accordingly, tax authorities nowadays, look further than the documentation itself. With that in mind, it is important to match your conduct with your TP policy’s. So, even if you are very static as an organization, you must regularly observe the various regulations and check whether the current TP policy and related documents are in order. So, organizations can ask themselves the following question:

  1. Is how we have currently organized our TP compliance sustainable?

The optimal situation

In determining your compliance strategy and risk appetite, two aspects can be distinguished. On the one hand your material compliance and, on the other hand, your formal compliance. For material compliance, you can go through six steps to set up the accompanying process. These steps consists of the following:

  1. Strategy & design (i.e. mapping the various intercompany transactions)
  2. Data (i.e. which data you require to be able to execute your TP policy correctly)
  3. Analytics & processes (i.e. ensure that your TP policy is processes in the administration and financial results)
  4. Governance (i.e. mitigate the risks and set clear responsibilities)
  5. Monitoring (i.e. regularly identify potential developments that would require an update of the TP policy)

Then, for the formal compliance, you will need to know the requirements in various countries and jurisdictions. Once you are aware of the requirements you can determine your formal compliance strategy and whether or not to take risks in some countries. With that in mind, organizations should ask themselves the following question:

  1. What would be our ideal scenario?

Conclusion

As a result of the aforementioned questions, the next step towards your compliance strategy must be taken.

  1. What would be a first step to start moving toward this scenario?

If you would like to personally discuss your first step towards compliance strategy or any other matter, please get in touch with us via info@quanteraglobal.com and we will direct you to the relevant professional.

TP Menus

Our core business is providing Transfer Pricing solutions that meet your requirements and needs. We can always offer you a perfect solution, regardless whether you just do not have the time, budget or resources to comply with extensive documentation requirements. Either you prepare the transfer pricing documentation yourself with our support or we can prepare it for you.

We offer a number of menus for the preparation of transfer pricing documentation. Please find an overview of our Menus here.