Transfer pricing documentation

Documentation requirements associated with intercompany transfer pricing arrangements have not only been tightened in Germany, but also in the national tax laws in many other countries around the world. The rules apply to business relations between separate legal entities as well as to the operations of a permanent establishment. For corporate groups, internationally coordinated solutions that have proven to withstand challenge are therefore becoming more and more important. PwC’s experts assist companies with transfer pricing documentation – through tailored advice and useful documentation tools.

Germany passed transfer pricing documentation regulations back in 2003. A major focus is on demonstrating that the related party transaction is arm´s length. The critical question here is what evidence is the most compelling and whether it is likely to be accepted by the tax authorities. There may be various ways to apply the arm’s length principle in Germany: Be it by analysing comparable arrangements of a company with independent third parties (so called internal data), or by preparing benchmarking studies, or by performing complex budget calculations of the company.

Non-compliance may result in adjustments to profits and penalties

The deadlines and requirements for the content, structure and language of the documentation often differ from country to country. A failure on the part of the taxpayer to fulfil the statutory documentation requirements may lead to adjustments to taxable profit. It may also result in fines and a shift in the burden of proof from the tax authorities to the taxpayer.

The requirements for transfer pricing documentation are therefore increasing. In particular, companies must pay a lot of attention to documenting that their transfer pricing arrangements are arm´s length. This makes the preparation of transfer pricing documentation also a process issue where companies should consider costs and efficiency.

PwC tools help companies in preparing documentation efficiently

The PwC transfer pricing network in Germany has developed proprietary concepts and technical documentation tools in collaboration with the international PwC network. With PwC’s globalDoc Solutions® tool, companies can efficiently and systematically manage their transfer pricing documentation using a Web-based software solution – and do so on either a centralised or decentralised basis. The tool helps companies create flexible country specific reports that meet local requirements.