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Transfer pricing for middle-market companies: One size doesn’t fit all

September 9, 2024 / 5 min read

When it comes to transfer pricing, middle-market businesses should have a cost-effective transfer pricing policy flexible enough to meet today’s needs and to support future growth. Here’s what you need to know to start planning.

One of the hallmarks of a successful middle-market business is growth in a wide variety of categories. For many businesses at this level, the combination of growth in revenue and geographic footprint will provide opportunities to partner with an advisor about a strategic transfer pricing policy. A well-designed transfer pricing policy can identify transactional flows that align with the business operations and management’s objectives of managing effective tax rates, creating cash repatriation valves, and mitigating tax compliance risk. 

A middle-market business that’s starting or expanding operations in new countries should approach transfer pricing with a risk-based evaluation of the anticipated level of intercompany transactions, the local regulatory environment, including legislative requirements and tax authority engagement, and the company’s resources to administer the ongoing maintenance of the intercompany policy. A formal policy plus documentation may be prohibitively expensive at this stage in the business, but a customized strategy that assesses jurisdictional concerns and transactional characteristics can help support a reasonable approach when faced with scrutiny from tax authorities. Even without external consulting services, taxpayers should develop and maintain documents that outline and support the transfer price they’ve developed.

A middle-market business that’s starting or expanding operations in new countries should approach transfer pricing with a risk-based evaluation.

Jurisdictional considerations when customizing a transfer pricing policy

Most countries follow guidelines set forth by the Organization for Economic Co-operation and Development (OECD), but every country has its own variations on the rules and local peculiarities. To customize a transfer pricing policy for operations in each country, a business should consider variables such as:

Intercompany transaction values

Regardless of jurisdiction, the value of the intercompany cross-border transactions will play a significant part in the discussion when it comes to transfer pricing. To customize a transfer pricing policy for intercompany transactions, a business should consider factors like:

Leveraging transfer pricing documentation when managing multiple business risks

A business planning its transfer pricing strategy and weighing the risk of its investment should also consider other purposes that the information can serve, including:

A business planning its transfer pricing strategy and weighing the risk of its investment should also consider other purposes that the information can serve.

Planning your transfer pricing strategy

The sooner a business starts planning its transfer pricing strategy, the easier and more cost-effective it is to build a scalable policy that can address current needs and grow with the company. Use these considerations to start your plan today and position your company for future success.

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