Transfer pricing documentation

An increasing number of countries are implementing laws regarding the preparation of transfer pricing documentation. With the new provisions of the Slovenian CIT Act in respect of transactions between related parties, effective as from 1 January 2005, Slovenia has joined those countries. PricewaterhouseCoopers is able to help you to prepare consistent documentation for all types of inter-company transactions in compliance with local regulations.

Documentation process

Transfer pricing documentation contains the disclosure of a complete transfer pricing analysis, which usually includes:

• Industry analysis, company analysis

This analysis involves an examination of the market in which the relevant commercial relations occur (including factors such as industry structure, market share and trends, substitute goods, etc.). The purpose of this analysis is to identify the industry sources of competitive advantages, key processes and value drivers, key risks and influences on pricing. The documentation should contain company analysis aiming at the identification of the enterprise specific value adding activities or sources of competitive advantages in accordance with the management model, business strategy and responsibility structure.

• Functional analysis

The purpose of this analysis is to identify the role of each participant in a related party transaction i.e. functions performed, risks borne and resources (including intangible assets) used. The relative compensation earned should generally correspond to their relative contribution.

• Economic analysis (method selection and benchmarking)

The economic analysis starts with determining the actual legal and managerial profile of an enterprise. This background will allow better selection of the appropriate transfer pricing method and the definition of comparable search criteria. The objective of these criteria is to identify comparable transactions (benchmarking) that allow the assessment of the arm’s length price of the relevant transaction.

• Financial analysis

Financial analysis applies the results of economic analysis to the tested inter-company transactions, in order to compare the prices applied among related business entities with the range of arm’s length prices, by using financial indexes. An adjustment would be necessary if the analysis identifies a significant difference between the indicators of the company and those of comparable companies.

What is Global Core Documentation®?

The PricewaterhouseCoopers Global Core Documentation® approach assists clients in managing transfer pricing documentation cost-efficiently by creating local documentation based on global common data and information.

At PricewaterhouseCoopers we used our extensive international network of transfer pricing experts to create a Global Core Documentation® scheme.

This scheme can be tailored to suit your needs and requirements. The first step in the process is the prioritization, analysis and formation of a core file of documents. It consists of group wide information, applicable to all countries. In the second phase, local economic analysis and presentation may be added to form a local report. Distinguishing core from local is a dynamic process and corresponds to your specific needs and the risks that your operation might be facing. In this respect, it reflects both the operational and tax objectives of the business.

STEP 1	STEP 2	STEP 3
		GlobalLocal
Create a joint global and local team for you and PricewaterhouseCoopers to suit your goals	Map related-party transactions of identified pilots	Complete Global Core Documentation
Assess risks and opportunities	Analyse global and local operations, financial situation and corporate legal structure	Local validation
Establish scope of activities and work (countries, regions, pilots)	Define common platform of inter-company dealings	Local country documentation reports (roll-out)
Project planning and designing a timetable		Ensure consistency among different counties