U.S. transfer pricing documentation helps companies show that the prices they use in transactions with related companies are consistent with the arm’s-length principle. In simple terms, the prices should be similar to what independent companies would have agreed to under comparable circumstances.
The United States has its own transfer pricing documentation rules. U.S. documentation requirements are primarily based on IRC Section 482, IRC Section 6662, and Treas. Reg. §1.6662-6.
A key transfer pricing documentation requirement in the United States is that taxpayers generally do not need to attach transfer pricing documentation to their tax returns. Instead, taxpayers should prepare and maintain the required documentation when they file their tax returns.
If the IRS requests the documentation during an examination, the taxpayer should generally provide it within 30 days of the IRS’s request. Preparing documentation only after an IRS examination has started may prevent the taxpayer from satisfying the requirements for certain penalty protection.
For this reason, companies with significant related-party transactions should prepare their transfer pricing documentation before or when they file their tax returns, rather than waiting until the IRS begins an audit.
Next, let’s understand the key components of transfer pricing documentation in the United States that the IRS requires.