domingo, 14 de noviembre de 2010

Transfer Pricing Issues to Consider at the End of the Year

"As the calendar year-end approaches, there are several important transfer pricing matters taxpayers should consider before closing the books on 2010. These include reviewing results for the year to ensure companies’ transfer pricing policies are being applied correctly, updating key data needed for transfer pricing computations, generating invoices, and evaluating any potentially necessary changes to transfer pricing policies for the following year.

At the close of the year, taxpayers should carefully analyze their projected financial results for transfer pricing purposes and ensure that profitability of key entities is consistent with any derived arm’s length ranges. This is one way to verify that intercompany payments are properly implemented. Even if the taxpayer uses transactional or profit-split methods, as opposed to direct benchmarking of profit margins, it is still advisable to compare the profitability of key entities to that of independent entities as a sanity check on the impact of transfer pricing policies. Significant deviations from a “normal” range of profits may lead to attention from tax authorities and possible reassessment by taxpayers of those policies. 


As further review of transfer pricing policies, companies may compare their projected Effective Tax Rate (ETR) for the year against earlier projections and the prior year’s level. Large differences may indicate that the transfer pricing calculations and results need to be double checked to ensure they are not having any unintended consequences. 


For intercompany service charges based on cost allocations, final projections for costs associated with beneficial services, as well as the allocation metrics used to charge those costs among related entities, should be updated in order to calculate annual service fees. If applying a factor-based profit split methodology, up-to-date information on the allocation keys needs to be collected in order to work out final splits for the year. If deviations materialize between end-of-2010 projections and final numbers, perhaps available in early 2011, companies should have a policy for addressing such situations (e.g., do such deviations lead to adjustments in the 2010 charges or are they rolled over to 2011?). 


All final transfer pricing charges should be calculated and invoiced, where appropriate. Proper execution of this step may have an impact on GST, VAT, and other factors.


Finally, by the end of the year companies should evaluate their transfer pricing policies and consider any possible changes for the following year. These changes may account for new entities or departments, re-characterization of existing ones (e.g., a multi-functional entity becomes a routine service provider), material business changes expected in upcom
ing quarters, outdated allocation factors, or any unexpected changes in the profitability of key affiliated entities."



Fuente: Ceteris' Transfer Pricing Times

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