Most countries require companies to prepare transfer pricing documentation on a yearly basis. This relates for example to the master file, local files, and other local transfer pricing forms. It is important to meet these yearly documentation requirements in order to prevent the potential consequences of non-compliance such as penalties, shifts in the burden of proof and director’s liability. As the annual accounts 2019 of most companies are finalized, this is the right moment to update your transfer pricing documentation to 2019.
Now is the right moment to act!
There are basically three reasons why this a good moment to update your documentation:
- Information on 2019 is on top of your mind;
- Databases are sufficiently updated with data for the year 2019; and
- Time to consider whether adjustments should be made for 2020.
1. Information on 2019 is on top of your mind
We recommend preparing your transfer pricing documentation as soon as possible after the relevant fiscal year has ended and once the annual accounts are finalized. Relevant business decisions, material changes compared to previous years and other information relevant for the documentation is then still on top of your mind. This prevents a time-consuming process of gathering the relevant information and contributes to an efficient update of the documentation.
2. Databases are sufficiently updated with data for the year 2019
An important aspect of your transfer pricing documentation are benchmark studies. The OECD Guidelines state that benchmark studies should be renewed every 3 year and recommend performing a financial update of the financials of the comparables each year. Having up-to-date benchmark studies is crucial in properly substantiating the arm’s length nature of the pricing of intercompany transactions.
As sufficient financial data for the year 2019 have recently become available in databases, this is a good moment to renew or update your benchmark studies.
3. Time to consider whether adjustments should be made for 2020
Updating your transfer pricing documentation automatically results in an assessment of the current transfer pricing policy applied. This includes alignment of the transfer pricing policy with economic developments and revised business models. Due to the impact of the covid-19 pandemic on companies’ businesses, this assessment is increasingly important for most companies. This would be an appropriate moment to consider whether adjustments should be made for 2020.
If you need support in updating your transfer pricing documentation or if you have any other questions, please reach out to your Quantera Global contact person or send an e-mail to firstname.lastname@example.org.