Transfer Pricing Assessment

Arms Length Principle
The arms length principle is open to interpretation in a number of ways and normally relies upon the established practice in the individual country. For UK purposes we treat the following as evidence of the arms length principle

· Can you identify similar transactions with parties not related to the company

· Analyse the results of this comparison

· Decide upon which Transfer Pricing method is best to justify the analysis

· Compare and benchmark the margins

Risk Assessment
Before a company prepares Transfer Pricing documentation they should do a Risk Assessment and decide what companies have transactions with another related company and will this have a Transfer Pricing impact.
In preparing the risk assessment you should

· identify any sales, services, licence fees, management charges and interest bearing transactions

· you will need to plan for what resources you have available and at what cost to capture the information.

Once the risk assessment has been completed you should choose how much information you need to include in your final manual. Generally the higher the risk the inter company transactions the more detailed documentation will be required.

Whatever the risk it is necessary to have some form of documentation for the HMRC should they request the information. A penalty will be charged for not having any form of documentation. Additional penalties will be charged for negligent or deliberate omissions or mistakes.