The regulations of transfer pricing have been making headlines during the last few years due to the number of controversies that resulted due to the tax structure of the multinational companies. In light of the recent developments, the companies are trying to work with their advisors to understand the increased requirements of reporting including the local and global files that vary from one country to another. The executives dealing with tax are into internal discussions with the Board of Directors to address the issues of transfer pricing. Companies are also probing the transfer pricing agreements along with the authorities to ascertain whether it is just right to go on with the agreement or not.
Taking the right decision
Is the transfer pricing agreement right for your business? This is one of the questions bugging your mind while preparing the agreement. A better approach for companies is to go for the option of APA or Advance Pricing Agreement which approaches the issue of transfer pricing better. Until now, this option was thought to be right for the large firms, but now it is considered as the right approach for companies of different sizes. With multilateral or bilateral APA’s, it would be better to deal with the complexities and the discrepancies that exist across the countries but approaching the top transfer pricing firms in India is a better option if you want to know how to deal with the issues or mitigate the problems occurring due to double taxation.
Understanding the policies and procedures
Usually, most of the companies prepare transfer pricing policies and allow it to stay for a few years. To make it more worthy, it must be reviewed at the right time during acquisition, restricting the business, and divestiture. With a regular review of the transfer pricing agreement, you can make sure that all the transactions with the other companies stay on record to avoid undesirable circumstances during the audit. Reviewing regularly will allow you to locate all the opportunities in business and tax that would otherwise remain unnoticed.
Knowledge of arm’s length principle
This is a preferred guideline that justifies the standards in transfer pricing in different jurisdictions. Typically, companies should price the transaction at the rates prevailing in the market and make sure you are aware of the laws of transfer pricing in the country in which to conduct business. Calculation of the arm’s length principle is another tactic you must understand properly. Understanding the mechanisms that track whether the intercompany pricing you follow meets the standards or the regulation in your country. During the test pricing of the transactions, you must not forget factors such as geography and volume of sale.
Integrating with ERP software
Several companies operate their intercompany transactions offline on the Excel spreadsheets due to which the IT system may not be incorporated into the policies of transfer pricing. With such a setup, businesses may need to make massive changes annually which impact the profits that the business should have made and what it has actually made. With the help of software integration, you can improve the quality of the data by keeping it at one location.
Transfer pricing audit
All the intercompany transactions may result in a transfer pricing audit. The timeframe for audit is usually low so you have to stay prepared with all the documents. Often the audit goes back and tracks the record of the past three to four years and it may be difficult to complete the entire paperwork within a short notice. Be sure to have the documents readied at the right time and consult an advisor to prepare the possible defenses so that the auditors do not require spending a lot of time to get their queries answered.
Seema Mehra is a Chartered Accountant at Ashok Maheshwary & Associates, is one of the best ca firms in Gurgaon that provides accounting services in India in a convenient manner. She is a professional writer and loves to share Financial related topics.