Transfer pricing

Compliant documentation mitigates risk

The Tax Authorities worldwide have increased their scrutiny of related party transactions and whether they are closed under the same conditions as would have been agreed upon with an actual third party. This because related enterprises, when doing business amongst each other, have the possibility to shift profits to one or the other entity or jurisdiction, which may create group wide benefits due to lower tax rates and/or loss offset possibilities.

In Multinational Companies, transfer pricing is becoming an important aspect in Board Meetings, since managing your transfer pricing avoids uncertainty, controversy and, perhaps even more important, avoids negative publicity like Apple and Starbucks had to deal with. Transfer pricing has therefore changed from being a tax planning tool to a risk management tool for companies.

Aruba has incorporated transfer pricing requirements in its legislation which are based on the OECD Transfer Pricing Guidelines for Multinational Enterprises. With the 14 Base Erosion and Profit Shifting action plans (“BEPS”), the related party transactions including pricing and its conditions will need to pass the at arm’s length test and need to be properly documented. BEPS however puts more emphasis on where “value” is created and not so much as to where an agreement says the value is created. That implies the functions, assets and risks of each entity within a group need to be able to support the profit allocated to it. But BEPS requires you to not only prepare a master file, but also local files and – perhaps the most important one – country by country reports.

Our professionals will be able to assist you with:

• Review of your existing transfer pricing documentation and providing recommendations to mitigate risks
• Assistance with preparing the local transfer pricing report that complies with local standards (in as far as available)

BDO has more than 250 transfer pricing experts worldwide with up-to-date knowledge of all aspects of transfer pricing. Together with you and your management team, compliance with the transfer pricing requirements can be tested and/or optimized. Being prepared is vital in transfer pricing disputes, since such disputes often result in adjustments that ultimately may lead to double taxation which should be avoided since it increases the cost of doing business.

Would you like to know more about how BDO can assist you with your documentation requirements? Please feel free to contact one of our professionals for an introduction meeting to determine if and how we can add value to your business or mitigate risks you may be exposed to.