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Transfer pricing policy – why is it worth it?

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​​​​by ​​​​​​​​​​​​Łukasz Peterek

23 July 2024


Transfer pricing is one of the key issues in finance management of multinational corporate groups. The term refers to prices set in transactions among associated enterprises, i.e. those that belong to one corporate group.​




What is a transfer pricing policy?


A transfer pricing policy is a collection of rules of collaboration among associated enterprises when it comes to:

  • the method of calculating transaction fees;
  • checking whether the transactions are at arm's length;
  • the functional profiles of the transacting parties;
  • the distribution of functions, risks and assets of individual parties to the transaction.


transfer pricing policy


A right transfer pricing policy ensures appropriate allocation of profits among tax jurisdictions and mitigates tax risks. Importantly, as the number of investigations to check whether transactions among associated enterprises are at arm's length is growing every year, taxpayers are increasingly more interested not only in basic issues such as transfer pricing documentation, but also more complicated aspects such as transfer pricing policy.​​

What should be in a transfer pricing policy?

A transfer pricing policy should include at least:

  • a description of the transacting associated enterprises;
  • a description of the transaction, including the analysis of functions, assets and risks (FAR analysis), transfer pricing method, benchmarking studies or conformity analysis;
  • financial documentation;
  • additional information (e.g. description of major changes during the tax year and their impact on the transaction);
  • compliance procedures – a description of internal procedures to ensure compliance with transfer pricing laws.

Benefits of a transfer pricing policy

Compliance with law


Above all, a right transfer pricing policy is needed to ensure compliance with tax laws applicable in various countries. The rule is that transactions among associated enterprises should be at arm's length, i.e. on terms and conditions that independent players would agree. A failure to comply with this rule may have tax implications, trigger additional tax liability or costly proceedings.

Tax risk mitigation


A transfer pricing policy is a key part of any tax mitigation strategy. Multinational enterprises that lack a clear transfer pricing policy are exposed to a risk of tax adjustments leading to double taxation of income. Reliable transfer pricing documentation with the right pricing methods minimises the risk of a dispute with revenue authorities and helps to avoid an unexpected financial burden.

Easier finance management


A right transfer pricing policy makes group finance management easier. It helps to better plan financial flows, control costs, and effectively allocate resources. Clear and transparent transfer pricing rules support strategic decision-making on business and finance, which may contribute to greater operating efficiency.

Greater credibility ​


Those who have a transparent and well documented transfer pricing policy may earn greater trust from revenue authorities and business partners. Transparency in transfer pricing testifies to a professional approach to finance management and compliance with international standards. This may increase trust and facilitate networking and maintenance of relations with business partners and revenue administration representatives.​


transfer pricing policy 


Is transfer pricing policy mandatory?


For many taxpayers, a transfer pricing policy is the same thing as transfer pricing documentation. This, however, is not the case. Above all, a transfer pricing policy is not mandatory, unlike transfer pricing documentation, which becomes mandatory once certain statutory thresholds are exceeded.

When it comes to the transfer pricing policy, it is up to the taxpayer whether he wants to draw it up e.g.:

  • to sort out charging rules among its associated enterprises;
  • as part of intra-group transactions;
  • in connection with the long-term planning of corporate group operations. 

Although a transfer pricing policy is not mandatory, it is a key component of risk management in the tax and business strategy of multinational corporations.

When is a transfer pricing policy worth having?

A transfer pricing policy may prove useful on many occasions but is particularly recommended whenever:

  • associated enterprises carry out numerous and significant transactions greatly affecting the group's financial performance;
  • the enterprises carry out the same types of transactions but account for them neither uniformly nor consistently;
  • despite carrying out controlled transactions the associated enterprises have neither benchmarking studies nor any other evidence of arm’s length nature of the transactions;
  • the transactions are charged at fixed rates and there are no specific billing rules (or the rates are not regularly revised).​

Summary


A transfer pricing policy is an integral part of finance management in multinational corporate groups. Carefully crafted transfer pricing rules ensure compliance with the law, mitigate tax risk and make finance management effective. Growing globalisation and digitalisation of the economy only increases the significance of transfer pricing policies, which thus become a key tool in strategic management of businesses and transactions.​

Trust the experts


If you consider drawing up a transfer pricing policy, call us​. We provide end-to-end support in transfer pricing and will be glad to address all your questions and doubts. 

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Daria Walkowiak-Dobner

Attorney at law (Poland)

Associate Partner

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