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Why is Transfer Pricing Documentation Important?
Documenting transfer prices means avoiding the penalty provisions. A 20 to 40 percent penalty will
automatically be added to any tax assessed as a result of transfer pricing adjustment when the adjustment
is above a certain size or percentage of the originally reported price. The penalty will apply unless
the U.S. entity does three things:
- Establish that at the time the corporate tax return was filed, specified documentation had been
prepared and supported the pricing method utilized
- Provide these documents to the IRS within 30 days of an auditor's request for them
- Make a substantive showing about the pricing method that was used and its ability to determine a "correct"
price for goods and services
Appropriate documentation is key with transfer pricing. The transfer pricing documentation needs to show that
it complies with Section 482. If there is a member of the corporate group that experiences recurring losses,
these need to be explainable. Piascik & Associates, P.C.'s transfer pricing team will develop policies that
are sensible and in accordance with the overall corporate strategy. We will assess the unique situation of
a client and develop a tailored strategy based on well established and proven methodology.
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