Transfer pricing documentation should describe the business as it actually operates. Before considering methods or benchmarks, management needs a clear picture of which entities perform important activities, use valuable assets and control commercial risks.
Map the transaction
Identify the parties, contractual terms, goods or services, payment flows and business purpose. Confirm that invoices and accounting entries follow the documented arrangement.
Understand functions and decision-making
Interview operational teams as well as finance. Determine who develops strategy, manages customers, approves expenditure, owns systems and responds when outcomes differ from plan.
Test contracts against conduct
Written agreements are important, but they should be consistent with day-to-day activity. Differences between contracts and actual conduct may indicate that the arrangement needs to be updated or analysed differently.
Maintain information annually
Business models change. New employees, products, markets or systems can alter the contribution made by each entity. An annual review keeps documentation aligned with current facts.
Starting with operational reality produces clearer analysis and more useful documentation for management.
This article provides general information and is not a substitute for advice based on your specific circumstances.
