Transfer pricing documentation is a collection of records that explains how a multinational business determined the prices charged for transactions between related companies. These records demonstrate that intercompany transactions are priced in accordance with the arm’s length principle. This means they are consistent with the prices that unrelated businesses would agree to under similar circumstances.
In the United States, transfer pricing rules are primarily governed by Internal Revenue Code (IRC) Section 482. On the other hand, the OECD Transfer Pricing Guidelines provide an internationally recognized framework that many countries, including the United States, follow.
Common transactions requiring documentation include the following:
Next, let’s understand why transfer pricing documentation is important for companies operating in the United States, including foreign companies.