Transfer prices are prices set up for goods (inventory, tangible or intangible assets, etc.) and services sold between controlled (or related) legal entities. Setting of transfer prices is an important topic for both taxpayers and tax administration, since it may, to the large extent, influence revenues, costs and the taxable profits of related entities in different tax jurisdictions.
Transfer pricing has recently become one of the priorities of the tax administration during tax audits. Tax audits currently aim on the accuracy of the transfer pricing applied between related parties and more specifically on whether the applied transfer prices respect (with regard to performed functions and assumed risks) the arms´ length principle.
Transfer pricing worldwide importance has grown as a result of OECD initiative that resulted in the action plan process BEPS (Base Erosion and Profit Shifting).
Applied transfer pricing methods (and the compliance with arms´ length principle) shall be documented in Transferpricing Documentation, preferably prepared in accordance with OECD guidelines. Such documentation can be also used within potential local tax audit or when required by foreign tax administrations auditing foreign subsidiaries.