Business development and the potential of tools for transfer pricing planning

In the dynamic business world, planning of settlement between related parties is becoming an essential part of groups’ business strategy. Changes in the market affect the development of new technologies, products and services. They determine the activities of companies in achieving economic benefits and competitive advantages. Well planned settlements are the basis for business success, so it is worth to use the right tools for transfer pricing planning.

Significant planning of intra-group settlements

Already at the stage of defining business goals, such as increasing sales, improving profitability or expanding into new markets, it is important to plan intra-group settlements as well. Proper determination of transfer prices facilitates right pricing decisions, supports the selection of the best business and tax solutions. For this purpose, it is worth using transfer pricing planning tools such as benchmarking analysis and transfer pricing policy.

Ex-ante benchmarking analysis

Benchmarking analyses are associated with verifying the arm’s length character of transactions only at the end of the year. However, it is the best to prepare such an analysis even before entering into inter-company transactions to ensure that planned settlements comply with the arm’s length principle. Benchmarks are a comprehensive tool for different industries, settlement types and business models. They take into account the specifics of the planned settlements and the situation in the industry, as well as the involvement of the parties to the transaction. They allow monitoring of market trends and the impact of changes in market conditions on the level of profit generated by comparable independent entities. Their advantage is that they can be used to simulate various settlement model scenarios and estimate future financial results taking into account arm’s length prices. This helps to determine the expected revenues and costs of planned business activities, thus reducing the uncertainty of financial forecasts.

This is not the end yet

If the business concept is being created, and transfer prices set at arm’s length level (based on benchmark results), it is worth to protect against tax risks by preparing a good transfer pricing policy. It is essential for planned, but also already ongoing transactions within the group. A well-prepared transfer pricing policy has a number of benefits, including:

  • defines consistent rules for determination of transfer prices within the group, ensuring consistency and transparency in the settlement planning process,
  • provides a set of rules for a particular type of settlements in the group, making easier the management of transfer prices by many related entities,
  • includes guidelines for verifying the market conformity of the prices applied, to enable ongoing monitoring of their compliance with the arm’s length principle.

Entrepreneurs who are planning a new business or developing an existing one should use the transfer pricing policy that will enable efficient and safe implementation of arm’s length transaction within the group.

What are the benefits?

There is nothing new that related entities are obligated to apply market prices. Entrepreneurs most often remember about it at the stage of reporting and documenting them after the end of the year. This is a mistake! It is worth to take the appropriate steps already when planning future transactions to ensure their compliance with the arm’s length principle. The two simplest of these are a good transfer pricing policy, supplemented by high-quality benchmarks. With these tools in place, an entrepreneur has the comfort that the transactions being implemented are arm’s length from the start, and tax risks are limited. Although the deadlines for fulfilling the transfer pricing obligations may seem quite far away, the second quarter of the year is the best time to prepare or update transfer pricing policy and benchmarks. Especially for those entrepreneurs who have not taken care of intragroup settlements planning at the beginning of the year.