Inadequate Documentation and Outdated Transfer Pricing Analyses

Transfer pricing documentation is not simply a report prepared once and then ignored.

The business, market, functions, risks, financial results, and intercompany transactions can change from year to year. A transfer pricing analysis that was appropriate several years ago may no longer reflect the company’s current operations.

U.S. documentation rules require taxpayers to maintain sufficient documentation supporting their selection and application of the transfer pricing method. In general, the required documentation must be in existence when the tax return is filed and must be provided to the IRS within 30 days of a request during an examination, subject to applicable rules and exceptions.

Common mistakes include:

• Using an outdated benchmarking study without considering whether circumstances have changed.
• Failing to update financial results.
• Failing to document changes in the business.
• Using inaccurate or incomplete data.
• Failing to explain comparability adjustments.
• Maintaining a transfer pricing policy that does not match the actual transactions.

Regular reviews can help identify these issues before they become audit problems.