Ideally, every company member of a group should have the answer to this question prior and not during the transfer pricing audit.

This section provides information regarding the main reasons for preparing a transfer pricing documentation file:

1. Legal requirements

Failure to prepare and submit such documentation would result in fines, transfer pricing adjustments and late payment penalties. Please find more here.

2. Fiscal protection

You know best which are your company’s functions, risks and assets consequently you can argue the fact that transactions carried with related parties were arm’s length. Having these arguments, the transfer pricing file is the taxpayer’s protection before tax inspectors and transfer pricing adjustments. The file must be updated whenever changes occur within the group or in the relevant market.

3. Management tool

If your business relies mainly on transactions  with affiliates, you will certainly want to know if the prices of said transactions are significantly above / below market level.

The benchmarking study, which is the heart of a transfer pricing file will give you the proper signals. Therefore, even though nobody called yet the tax inspector, it would be advisable to update your comparability study at least annually, if not the whole file.