If you are an international company with subsidiaries in multiple countries, I am sure you are haunted by the term “transfer pricing”. I hope that anyone with common costs that are recharging these costs (like admin, CFO, legal, etc.) are already aware of this concept!<\/p>\n\n\n\n
I am not a transfer pricing expert, that tends more towards tax advisory, but I had a client call recently focused on this topic and how to optimize his calculations and records to ensure compliance. I thought I would pass along some thoughts on this topic, in case it helps anyone else<\/p>\n\n\n\n
\ud83d\udc49 TAKE INVENTORY OF YOUR JURISDICTIONS: each country has it’s own requirements related to intercompany recharges. Many countries follow the OECD guidance here, but the US especially being subject to IRS regulations can be more onerous.<\/p>\n\n\n\n
\ud83d\udc49 DETERMINE WHICH COSTS BENEFIT OTHER ENTITIES and be prepared to defend it. You can only recharge costs that are actually serving the entities charged<\/p>\n\n\n\n
\ud83d\udc49 EVALUATE IF COSTS ARE LOW OR HIGH VALUE: are the costs recharged supportive in nature or providing some economically significant\/valuable activities? This will determine if you need to perform a full transfer pricing exercise to determine arms length.<\/p>\n\n\n\n
\ud83d\udc49 BACK-UP YOUR MARK UP: Per OECD guidance, low value services can use a blanket 5% markup (avoiding the cost associated with a full exercise). If your costs don’t fall into this category, or you are using a different %, overarm yourself with documentation to support this<\/p>\n\n\n\n
\ud83d\udc49 DOCUMENT, DOCUMENT, DOCUMENT: in the case of a tax audit, be prepared to show how you calculated the total costs to be recharged and by what allocation keys you recharged those costs (ie turnover, headcount, etc.)<\/p>\n\n\n\n
\ud83d\udca1 HELP YOUR WORKING CAPITAL: the more frequently you can invoice your intercompany costs, the better your liquidity of the cost center will be. This will normally necessitate use of budgeted\/forecasted numbers, as opposed to invoicing based on actuals (as this slows down the process as well). Make sure you do an annual true-up to compare actual FY costs versus those invoiced-to-date!<\/p>\n\n\n\n
Anything else I am missing from consideration? I hope this helps!<\/p>\n","protected":false},"excerpt":{"rendered":"
If you are an international company with subsidiaries in multiple countries, I am sure you are haunted by the term “transfer pricing”. I hope that anyone with common costs that are recharging these costs (like admin, CFO, legal, etc.) are already aware of this concept! I am not a transfer pricing expert, that tends more […]<\/p>\n","protected":false},"author":2,"featured_media":25544416,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[11],"tags":[],"dipi_cpt_category":[],"class_list":["post-25544411","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-international-acquisitions"],"yoast_head":"\n