Tax regulations across different countries do not always align, which can result in companies facing double taxation. This can create substantial financial and administrative burdens. A company can partially mitigate this risk by implementing a well-thought-out transfer pricing (“TP”) policy.
In this regard, companies should adhere to several best practices:
- Comprehensive Documentation: Maintain clear and well-substantiated TP documentation in accordance with OECD guidelines. Compliant documentation is essential for defending your pricing decisions in the event of an audit.
- Market-Based Pricing: Apply business terms that are comparable to those used between independent parties, ensuring transactions are conducted ‘at arm’s length’.
- Regular Review: Regularly review your TP policy to ensure compliance with changing tax regulations.
Conclusion: Navigating the Gray Area of Tax Optimization
The lessons learned from recent TP case law teaches us that a robust TP policy, supported by detailed documentation, is essential to prevent legal disputes and reputational damage. By adopting a transparent and compliant TP strategy, companies can navigate the complexities of international tax regulations.
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