Transfer pricing documentation
The burden of proving that prices with related parties are at arm's length rests with the taxpayer. A gap in documentation costs evidential strength before any assessment is even made.
The Corporate Tax Law provides that where goods or services are bought or sold with related parties at prices contrary to the arm's length principle, profit is deemed to have been distributed in a disguised manner. The distributed profit is then re-characterised as a dividend and taxed accordingly.
Who is a related party?
- The company's own shareholders and the individuals and entities connected with those shareholders
- Individuals and entities to which the company is directly or indirectly connected, or under whose influence it stands, in terms of management, supervision or capital
- Spouses of shareholders, their ascendants and descendants, and relatives by blood or marriage up to the third degree
The documentation set
| Document | Content | Timing |
|---|---|---|
| Annual transfer pricing report | Domestic transactions, method selection and comparability analysis | By the corporate tax filing deadline |
| Master file | Global structure of the group, value chain, intangibles | By the end of the following accounting period |
| Country-by-country report | Group revenue, tax and activity by jurisdiction | By the end of the following accounting period |
| CbCR notification form | Group and reporting entity information | Within the period set by the authority |
| Return annex form | Summary of related party transactions | With the corporate tax return |
Choosing a method
The arm's length price is determined using whichever of the statutory methods best suits the transaction: comparable uncontrolled price, cost plus, resale price, and transactional methods. The reason for the choice must be stated clearly in the report; it is the outcome of a comparability analysis, not a preference.
Why documentation matters
- Taxpayers who meet documentation obligations fully and on time may benefit from reduced penalties.
- The report is the first document requested in an audit. Without it, the discussion shifts from the accuracy of the price to the taxpayer's ability to prove it.
- Where no benefit test has been performed on intra-group service charges, there is a risk of the expense being disallowed.
- An advance pricing agreement allows the method for certain transactions to be agreed with the authority in advance.
Legal basis
- Corporate Tax Law No. 5520, Article 13
- General Communiqués on Disguised Profit Distribution through Transfer Pricing
- Documentation thresholds set by presidential decision
This article is general information and does not replace professional assessment of a specific matter. Amounts and rates relate to the stated year; please verify the current provisions before acting.
