transfer pricing documentation

Transfer pricing documentation involves companies keeping detailed records of transactions between related entities, like subsidiaries or divisions, to ensure prices set for goods, services, or intellectual property are fair and align with market rates. This helps authorities verify that profits are not artificially shifted across borders to avoid taxes. Proper documentation demonstrates compliance with tax laws and provides transparency, reducing the risk of penalties. Essentially, it’s a way for multinationals to justify their internal pricing practices to tax authorities, ensuring that each country’s tax obligations are accurately reported.