How To Complete A Year-End Transfer Pricing Review [A Checklist]
Posted by Valentiam Group on March 2, 2020
It’s common practice for corporate tax professionals to perform a year-end review of their company’s related-party transactions, whether it occurs at the end of December, June, or another month entirely. This review is an opportunity to perform a thorough transfer pricing risk assessment and determine whether any adjustments are necessary to ensure intercompany transactions are within the arm’s length range.
But with so many tasks on your to-do list, it can be challenging to cover all your bases and make sure you’re not missing any steps when performing your year-end review. This article includes a checklist to use as a template for your company’s annual review of transfer pricing activities, policies, and results. (Tweet this!) With this list in tow, you can conduct your yearly transfer pricing review with confidence.
A Checklist For Year-End Transfer Pricing Adjustment & Risk Assessment
✓ Review your intercompany transactions.
Review your intercompany transactions and assess the volume and pricing of each. Also, identify any new transactions that you may need to later document. Be sure to liaise with other tax/accounting personnel to ensure matching records. For example, are the transactions that you’re aware of consistent with those that will be reported on the company’s 5472?
Additionally, be aware of any exceptional or one-time costs that you may later need to document and explain.
✓ Assess intercompany transaction financial results.
Year-end is the time to review your company’s financial data and operating results. Start by pulling financials for any related-party transactions identified in step one above. Determine whether you met your intended year-end outcomes for these transactions. For example, did your intercompany pricing for a limited-risk distributor yield an outcome for that legal entity that is within the arm’s length range? If not, transfer pricing adjustments may need to be considered.
✓ Determine if you need to make adjustments.
Determine whether you have to make any transfer pricing adjustments for the year. If you deem that adjustments may be necessary, determine the amount and whether the relevant jurisdictions will allow them to be made. Where adjustments are allowed, also determine whether the relevant jurisdictions have any specific rules for such adjustments. For example, should adjustments be made on an aggregate or transactional basis when there are tangible asset sales between related parties?
✓ Review & update intercompany agreements.
It’s important to review and update your intercompany agreements periodically, and year-end is a great time to do so. At a minimum, do you have agreements in place for each of your intercompany transactions? If so, do those agreements accurately delineate the actual transaction that is taking place?
There are three more steps involved in managing the process successfully—to read about them, download our free checklist, Important Considerations For Year-End Transfer Pricing.
Topics: Transfer pricing
There are no guarantees for avoiding transfer pricing audits, but taking these steps will reduce your risk—and ensure you’re prepared if you are audited.