How to Deal with Transfer Pricing Audits

When evaluating taxpayers, the key focus area for tax authorities is transfer pricing. The reason for this is that transfer pricing correction is a simple method to drive tax proceeds in general. It’s perceived that the number of transfer pricing audits in the industry improves whenever there’s a huge shortage in the budget of a government. Of course, tax authorities will deny this observation. However, everybody knows about this in practice.  

There’s an excellent possibility that you experience an evaluation on your policy at some point. This is particularly true if your company is subject to transfer price regulations. This might appear like a bad thing, and it really is on a couple of occasions. But, most transfer pricing audits don’t lead to bad things.  

Today, we’re going to share with you some tips in dealing with transfer pricing audits. 

Dealing with Transfer Pricing Audits 

Every transfer pricing audit isn’t the same. Also, there are no ordinary regulations that apply equally to every case. Here are a couple of basic tips that you can follow. 

  • Do Not Panic 

For tax authorities, an audit is a standard control tool. It does not really mean that your company is in trouble. The audit will result in something good if you’ve paid enough attention to document and analyze the transfer pricing position. 

  • Be Practical When Preparing the Records 

You have to carefully think about what details you want to offer. It has to be presented in an orderly manner, factual, and relevant. You have to include a cover letter or table of contents that detail exactly where everything can be found. There are 2 reasons why you do not want to give the auditor a pile of documents. This includes: 

  • You need to have control of the details you provide. The only purpose of your documents is to answer questions. You should not offer details that raise new questions.  
  • The audit will be over sooner if it’s easier for them to evaluate it. In addition to that, they may believe that your transfer pricing is also carelessly done if you look disorderly.  
  • Inform Key Stakeholders and Management About the Audit 

An audit can expose a business to severe risks. For those who don’t know, this is a vital detail for key stakeholders and management. You should not wait too long to tell them about this.  

  • Ask the Tax Authorities 

Before you hand over any details, you’ve got to ask the tax authorities about the scope and nature of the audit. You can also ask them for time to communicate with your tax advisor or legal advisor if possible. They can offer you helpful recommendations on whether there’s a legal need to cooperate. If you’ve really got to cooperate, they can provide you details on what you can offer. If they can attend the audit, it will be a lot better for you.  

If you follow these tips, you can lower the risks associated with transfer pricing audits. You shouldn’t really be scared if you’ve done your research.