Transfer pricing compliance issues: managing risk

With greater focus on transfer pricing by tax authorities worldwide the risks involved in setting and supporting prices on intra-group transactions are becoming increasingly evident.

Those risks can be significant and justify thorough attention but transfer pricing can be time consuming and rarely offers certainty. Tax departments have limited resources and particularly in the current climate any expenditure on transfer pricing must be cost effective. It is reasonable for a business to allocate resources to the areas of highest risk but the question is often how to identify high-risk areas and what is an acceptable minimum for low-risk areas.

This article looks at transfer pricing risk then sets out a practical risk-based approach to transfer pricing compliance.

Transfer pricing risks

The risks for taxpayers with intra-group transactions include:

• double taxation if a tax authority...