42 Transfer Pricing Wisdoms – Wisom No. 2

This week, we continue the voyage through transfer pricing’s myths and wonders, both dangerous and captivating at the same time. Wisdom number two enlightens the windy road and offers guidance when you feel lost.

Transfer Pricing Wisdom No. 2: Keep it lean!

There are different kinds of spaceships. Huge ones, as the ‘Death Star’ (since it’s made by stormtroopers’ companions and may travel around steered by the dark side of the Force, it should be considered as a spaceship, I guess), smaller but still big ones like the ‘Super Star Destroyer’, there is the medium class with ships like the ‘Millenium Falcon’ and there are the small and agile ones like the ‘Jedi Starfighter’ or the ‘TIE Fighter’. The advantage of the bigger ones is more firepower. The advantage of the smaller ones is that they are not so easy to attack.

When it comes to your transfer pricing system, firepower is no relevant feature. It’s all about not becoming an easy target for the taxmen. Of course, only some of them belong to the dark side of the Force, but the problem is that there are many of them in many countries and they may attack your fleet from different directions.

More intra-group transactions mean more targets. The more documentation you provide on your transfer pricing system, the more points to attack. Of course, there are good reasons for your intercompany business and there are documentation requirements that must be observed. But less intra-group transactions and less documentation often mean less transfer pricing risks. We’ll come back on that later, but always bear in mind that not only in space a general rule is: Keep it lean!

Next week – Transfer Pricing Wisdom No. 3: Don’t be afraid of time travel!