Below you will find information on the four basic issues:
- Who should prepare benchmarking studies and why?
- What the study should contain?
- How to prepare it?
- The scope of our support
The comparative analysis prepared for the purposes of the Transfer Pricing documentation is a key element justifying the level of prices agreed in transactions with related entities.
A properly prepared analysis protects the taxpayer against additional estimation of:
- Transaction values due to incorrect determination of transaction prices,
- Income tax penalty rate,
- And the consequences of penal fiscal responsibility for key persons in the company.
In practice, each entity concluding group transactions (also taking into account personal ties) should take into account a possible tax audit of prices used in such transactions.
In accordance with the OECD guidelines, the benchmarking study (comparative analysis) should primarily contain information explaining:
a) parties of the transaction
b) assumptions underlying the analysis,
c) the reasons for using one-year or multi-year comparative data,
d) comparative data, including financial data or financial ratios, relating to business operations conducted with or between independent entities,
e) applied corrections,
f) a designated point or market range with a description of the possible use of statistical measures for this purpose, along with the justification whether the terms of the transaction or other event do not differ from those that would be established between independent entities.
Clearly, the above list is only an introduction to what the study on the valuation of transactions with a related entity should look like.
Undoubtedly, the source of the data used in benchmarking study is crucial. Comparative data can be sourced from:
- Company’s internal data in the context of identical transactions concluded between related and unrelated entities,
- External data from specialized databases containing information on financial data of comparable entities,
- Other data sources available to the taxpayer that allow to develop a reliable assessment of the arm’s length nature of prices for comparable transactions,
For service and commodity transactions, it may be possible to find comparative data using a database such as Amadeus Van Dijk. License transactions, on the other hand, require databases such as RoyaltyRange or RoyaltySource. Financial transactions can be compared by using databases such as Bloomberg and Reuters.
In the case of financial transactions, the list of parameters that must be taken into account makes it practically impossible for the taxpayer to prepare the analysis on his own (unless it has it’s now external data).
The mere access to the database, unfortunately, does not guarantee the success of the research. The use of appropriate transaction methods, the justification of the chosen approach as well as the complementarity of comparative analysis with the Transfer Pricing documentation (Local File) are just the basic requirements that the taxpayer has to face.
Therefore, as part of our services, we offer our clients:
- The entire scope of our knowledge on Transfer Pricing obtained while working for the largest local taxpayers and for MNE’s including UK and Asian companies,
- Access to specialized databases and practical knowledge of the methodologies used,
- Professionally and carefully prepared reports and documentation in accordance with the current legal interpretation,
- Knowledge of the officials’ approach to transfer pricing issues during inspections.
Our experience in developing benchmarking studies and Transfer Pricing documentation, as well as access to appropriate databases, give us and our clients a sense of peace in the event of a possible inspection. Our clients are also represented by us as a registered Tax Advisory Company during proceedings before tax authorities and administrative courts.