If your company is part of a group of companies, is a subsidiary or branch of a multinational, or you are a partner in a professional company to which you provide services, it is likely that you engage in transactions and receive goods and services from other companies within the group, your parent company, or your own company. In this regard, the tax regulations of the Corporate Income Tax require that these transactions be conducted at market prices in order to prevent profit shifting between companies or countries.
Additionally, when certain quantitative thresholds are exceeded, generally €250,000 with each related entity, it is also necessary to document and justify these transactions through Transfer Pricing Documentation. This documentation consists of the group’s master file and the taxpayer’s local file.
The obligation to document these transactions does not depend on the size of the company, as even the smallest companies linked to a group must comply with this requirement. However, depending on the group’s revenue, the documentation requirements may be simplified in their reduced version, except if the group generates less than €10 million in revenue, in which case the form 232 is applied for the documentation submission.
For groups with revenue between €10 million and €45 million, the simplified documentation excludes the master file, while the local file will have simplified content that includes the description and amount of the related transactions, identification of the valuation method used and the comparable obtained, as well as the values or value ranges derived from them, which implies conducting an economic analysis.
Advantages of documenting related transfer pricing operations:
In addition to being, in most cases, a legal obligation, documenting transactions between group entities offers several significant advantages. Firstly, it allows the taxpayer to more effectively defend the valuation of transactions carried out with related parties in the event of a tax inspection, thereby avoiding potential adjustments and corresponding financial penalties, which can be significant.
Furthermore, preparing this documentation contributes to more efficient management of operations within the group by enabling proper localization and remuneration of the value generated by your company. Through an analysis of the operational functioning and roles performed by each entity, conclusions and improvements can be drawn that will enhance the efficiency and optimization of the business model.
At addwill, we have an expert team and the necessary experience to assist you in preparing this documentation, providing a practical approach and fulfilling this essential obligation. Not only will it help you comply with legal requirements, but you will also gain valuable insights to make your business more efficient.
In an increasingly globalized world where operations between different countries are common, it is crucial to document related transfer pricing operations. It is not only a legal obligation but also offers key benefits such as protection against tax inspections, optimization of the business model, and efficiency in managing operations within the group. If you need more information or have any questions, please do not hesitate to contact us by clicking here. We will be glad to assist you.