As companies expand, transactions between related entities multiply: sales of goods, intercompany loans, management fees, royalties and shared services. Each one must be priced as if the parties were independent.
The risk
If the tax office believes a transaction is not at arm's length, it may adjust taxable income — leading to additional tax, interest-based penalties and potential double taxation.
The defence
Contemporaneous documentation — a Master File and Local File prepared on time — shows how prices were set, which method was used and why comparables support the result. It shifts the conversation from suspicion to evidence.
Start early
Documentation is far easier to prepare during the year than at audit time. Agreements, invoices and evidence of services rendered should be collected as transactions happen.
