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Required Documentation

The most important stage in any transfer pricing audit is the request for transfer pricing documentation. The required documentation mainly includes a "Study", which is a comprehensive document that includes, inter alia: (a) a legal-functional analysis of the taxpayer, including a description of roles undertaken, risks assumed and assets owned by each party to the transaction; (b) an industry analysis: a review of the industry, the competitors, certain economic influences, etc; (c) a description and rationale for the selection of a proper transfer pricing methodology; and (d) a legal-economical analysis: evidence that the methodology has resulted in an arm's length outcome (typically, a benchmarking study). In addition, a relevant intercompany agreement (resulting from the study and based upon its results) is required as well.
This kind of documentation is helpful in defending, resolving, and eliminating, past, present, and future transfer pricing exposure.

The study is drafted in accordance with applicable local and international legislation and protects the corporation in each relevant country in which it is active. Bar-Zvi & Ben-Dov has filed and successfully defended transfer pricing documentation on behalf of its clients worldwide, with work undertaken for multinationals such as Berlitz, Crocs, Disney, GlobalLogic, KAZ, Nova, RAD, Taro Pharmaceuticals, Teva Pharmaceuticals, and many others.

It is important to note that this documentation is required according to applicable law even if the company believes it has been operating at arm's length, and that insufficient required proper documentation or lack thereof, could lead to sanctions such as reversed burden of proof, upward adjustments of taxable amount, adjustments to prior years (roll back period), international double taxation regardless of any tax treaty (!), fines, and, naturally, damage to the reputation of the entire group.