As an international business that wants to optimise its business model, transfer pricing documentation has to be filed in good order. This administrative investment will pay off, in particular when transfer pricing allows you to make the best use of the tax facilities, resulting often in reduction of tax payments and limitation of the risk of penalties.
Transactions within a group
If transactions take place within your group, the transactions have to be charged on commercial prices. Both on a domestic and international basis, it is a statutory obligation to properly substantiate the prices and other conditions applied on intercompany transactions. These are referred as ‘intercompany transfer prices’.
Substantiation of intercompany transfer prices
The substantiation of intercompany transfer prices is called the collation of the transfer-pricing documentation. This documentation must be available during tax inspections. If this documentation is not in order, this may result in (substantial) corrections of the profit, which subsequently may result in double corporate income taxation.
These intercompany transactions should be based on an ‘at arm’s length’ pricing range. The standards to determine whether prices are commercial prices derive from the so-called OESO transfer pricing guidelines. These standards are applied by countries worldwide. By following these, you will be sure that your transfer pricing system should be accepted in any country you are trading in. In the annex below, please find an update concerning the documentation requirements that are part of the new legislation.
More profit at a lower rate
Transfer pricing will show you where within your business most of the added value is generated. It enables you to better guide and manage your company. With this knowledge, it may also be possible to allocate more profits to value-adding businesses. This may also result in allocation of profit to a country with a low tax rate.
More stringent requirements for transfer pricing
Due to the increasing political pressure on tax evasion and tax havens, both from the European Union and from the OECD the requirements of transfer pricing are becoming more strict. Various standards have been introduced for smaller, medium-sized and larger groups, based on the annual turnover of the group. For smaller companies (up to € 50m annual turnover) not much has changed. However, in practice, we do see that these companies often do not have their documentation in line with the transfer pricing documentation requirements.
More information and contact details
At accon■avm we have international consultants who can offer advice and support with the collation of documentation accepted by the Dutch Tax Authority. We also offer a quick scan for an initial analysis. If you are interested or have questions about transfer pricing, please respond by sending an e-mail to email@example.com. We would be happy to give you advice.Get your free whitepaper now
Annex transfer pricing - May 2017.pdf