Not so long ago the corporate tax department operated separately from group control. It was considered to be a separate function that had not much in common with group control. That has changed a lot over the last decade or so with the introduction of new transfer pricing guidelines by the OECD in 2017. More transparency and documentation is required nowadays. So there is no more disconnect between the cost allocation and transfer pricing. The OECD has translated the ‘At Arm’s Length’ principle into five transfer pricing methods that are accepted:
Traditional Transaction Methods:
- comparable uncontrolled price (CUP)
- resale price (RPM)
- cost plus (CPM),
Transactional Profit Methods:
- transactional net margin (TNMM)
- transactional profit split (TPSM)
Whatever transfer price method you use it is always good to check the transfer price with the cost. In some cases this could mean that applying other transfer pricing methods lead to more optimized tax payment at the group level. Transfer Pricing requires good documentation and transparency how you have applied the “At Arm’s Length’ principle.
We have experience with setting up the EPM system for Transfer Pricing purpose. This also includes the automatic invoicing of these products and services using the transfer price and volumes and the associated inter company bookings in the ERP system.
Contact us for more details on our Transfer Pricing services.