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Most multinationals lack a documented transfer pricing policy
Transfer pricing exposure is close to universal for groups with cross-border intragroup transactions, yet most are not ready for it. That is the main finding of the Transfer Pricing Readiness Assessment, a study by Baker Tilly tax specialists in Mexico, Portugal and Spain covering companies in Europe and Latin America.
Around 94% of European and 93% of Latin American respondents said they are exposed to transfer pricing rules. Even so, 53% in Europe and 56% in Latin America have no documented transfer pricing policy, which is usually the first document a tax inspector asks to see.
Confidence is not the same as compliance
The study scored each company out of 100 across seven areas, including knowledge, documentation, intragroup practices, internal resources, risk controls, evidence retention and awareness of APA and MAP mechanisms. Average scores were 58.9 in Europe and 54.2 in Latin America, and about one in three companies fell into the lowest tier. How much companies believed they knew had only a weak link to what they actually had in place.
Three choices make the difference
Region, sector and company size made no meaningful difference to readiness. What did matter was having a documented policy, having dedicated in-house transfer pricing resources (only 39% in Europe and 42% in Latin America do), and knowing whether the business could access transfer pricing audit. Almost nine in ten companies use external advisers, but the study found that only sustained, recurring engagement was linked to better results.
The study recommends that companies formalise their policy, validate their documentation (local file, master file and country-by-country report) and test existing intragroup transactions against it, then build internal capability and evidence retention ahead of any audit. Transfer pricing documentation is also required in Thailand for related-party transactions.
To discuss what this means for your business, contact our team.
Acting early always costs less than fixing it under audit. The best-prepared companies are simply the ones that decided to take the initiative before the inspector did.
Key takeaways
- More than half of companies exposed to transfer pricing rules have no documented transfer pricing policy.
- How much companies think they know about transfer pricing is only weakly linked to what they have in place.
- A documented policy, dedicated in-house resources and sustained adviser engagement separate prepared groups from exposed ones.
Source: Over half of multinationals exposed to transfer pricing lack a documented policy, Baker Tilly International.
This update is for general guidance only and should not be relied upon for specific matters. Professional advice should be obtained for application to your particular circumstances.
