The authors highlight how and where the accounting revenue recognition standard, ASC 606, is likely to have an effect on companies’ transfer pricing analyses, such as in applying profit-based methods, under cost sharing, and in preparing country-by-country reports.
They recommend proactive engagement between tax, finance and other stakeholders as the standard is adopted to make sure any necessary actions or key decisions are addressed fully.
To understand how transfer pricing may be affected by the adoption of the new revenue standard, it is necessary ﬁrst to review the analysis—in a ﬁve-step process—that is to be applied to practically all third-party customer contracts to determine what amount is to be recognized as revenue, and at what time.
As the authors outline in this article, a complex analysis will need to be performed to determine the impact of the new revenue standard on the company’s transfer pricing proﬁle. The key action for the tax team will then be to perform a detailed transfer pricing impact assessment, focusing on the following:
Illustrates reporting for calendar year-end companies