Transfer Pricing Policy: Paving the way for the journey ahead

You must have heard about transfer pricing by now and possibly have an idea of what it means. In case you haven’t then you have a longer road to travel than many others, but the good news is you can start now and still make it to the finish line in time. You may also have received a letter from the Federal Inland Revenue Service (FIRS) requesting for your organisation’s transfer pricing policy. If so, congratulations – at least it shows that you have records with the taxman and you have not been forgotten even if you wish so. If not, then your guess is as good as mine.

Transfer Pricing (TP) deals with the interaction between related parties, both corporate and natural persons, in terms of commercial transactions from one to another and ask the question "what is the basis of the price agreed for your related party transactions?" Make no mistakes; this is not just about having a written agreement in place – it is about being able to justify to yourself and the taxman that the price (or fee) being paid is not arbitrary, and has not been manipulated to confer on you or your related party an undue advantage to the detriment of the taxman.