Transfer Pricing Documentation (Section 92D

r.w. rule 10D) and Global Documentation

framework 1
Agenda

• Rules & Regulations

• TP documentation flow
 Executive Summary
 Corporate/ Group Overview
 Industry Background
 Transfer pricing regulations & their
applicability
 FAR Analysis
 Economic Analysis
• Points to be considered
• Practical Toolkit for TP Documentation
• Global Documentation

2
Rules & Regulations

3
TP Documentation – Regulations

Section 92D(1)
Every person who has entered into an international transaction or
specified domestic transaction shall keep and maintain such
information and document in respect thereof, as may be
prescribed in Rule 10D;
Provided that the person, being a constituent entity of an
international group, shall also keep and maintain such
information and document in respect of an international group as
may be prescribed.
OECD TP Guidelines
The above description and steps very closely follow international
guidance matter laid down in Chapter 5 of the OECD TP
guidelines.
It also provides guidance to assist taxpayers in identifying
documentation that would be most helpful in showing that their
transactions satisfy the arm’s length principle and hence in
resolving transfer pricing issues and facilitating tax examinations.

4
TP Documentation requirement as per Rule 10D of the Indian
Income Tax Rules, 1962
Rule 10D states that “Every person who has entered into an international transaction or a specified
domestic transaction shall keep and maintain the following information and documents, namely:”
► Ownership Structure

► Profile of multinational group Entity Related

► Business description/ Profile of industry

► Nature and terms (including price) of international transactions

► Description of functions performed, risk assumed and assets
employed (functional analysis)
► Records of economic and market analysis (economic analysis)
► Record of budgets, forecasts, financial estimates Price Related
► Any other record of analysis (if, any) to evaluate comparability
of international transaction with uncontrolled transaction(s)
► Description of method considered with reasons of rejection of
other methods

► Details of transfer pricing adjustment(s) made (if, any)

► Any other information e.g. data, documents like invoices,
Transaction Related
agreements, price related correspondence, etc.

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TP Documentation – why necessary

► Self review of intercompany transfer pricing

► Penalty protection

► Basis for the selecting method in Form 3CEB

► To be prepared for transfer pricing audit

Effective communication of TP policy is critical for tax

authorities to appreciate and approve transfer pricing
documentation

6
Transfer Pricing Documentation Flow

7
TP Documentation – Best practice

Conclusions Executive
summary

Economic Industry
analysis analysis

Documentation
Flow

Evaluation Company
of methods analysis

Functional Intercompany
analysis transactions

8
Executive Summary

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Executive Summary

1. The objective of this transfer pricing analysis is to support the arm’s length nature of international transactions
and specified domestic transactions entered into by the assessee.
2. Flow is important and should capture all the major observations and findings of the document – it has to
essentially be crisp and succinct!
3. Should clearly lay out the following:
 the business of the group and the taxpayer indicating the relation between the group and the taxpayer,
 the activity performed / services provided,
 characterisation of the entities involved,
 list of all international transactions (with value and the methodology applied)
 result of the economic analysis; and
 Conclusion
4. Also, a TP document needs to mention the fact that the results are pertinent to that financial year and the
results may need to be updated based on latest financials result, change in FAR profile or the level of
tangible/intangible asset owned (i.e. the need to review and update the transfer pricing policy/arrangement to
reflect change in market conditions especially during assessments)

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Executive Summary (cont..)

Format
XYZ India Result of
Comparability
Number of Analysis
International Transfer Pricing Total Value Comparable
Transactions Method 35th –
PLI of MarginCompanies 65
Transaction th
(Amount in INR) Percentile /
Arithmetic
mean
Purchase of IT Peripherals 1,007,671,321
Resale Price 131.43%-7.00%
Method Gross profit/Sales 28.13%
Rework activity income* 3,632,517

Provision of services Transactional Net Operating profit/ 70,200,271 12% 8 10.60%-15.01%

Margin Method Operating Cost
Reimbursement of 4,436,810
expenses
Other method NA NA NA NA
Recovery of expenses 1,282,105
• The aggregate of accounts receivable and payable outstanding as on 31 March 2019, amounts to Rs. 3,85,769 and 4,67,557
respectively from/to the AEs. Since the receivables/payables are arising out of the main transaction, there is no need to benchmark
the same separately.
• *Since rework activity income forms part of the main transaction of purchase of IT peripherals, the same is aggregated with the main
transaction.

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Corporate/Group Overview

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Corporate/Group Overview
• This section should provide an overview of the operational and legal structure of the Company and its Group
and Group companies
• The section should contain a brief background (date of incorporation, employee base, global presence etc.),
the operational/shareholding structure (preferably in a flow chart), short description of the business
segments, activities performed/services offered under each segment and the product profile
• Company overview may mention the arrangement (from the agreement) with the group company
• Overview of financial performance of the entity for which the documentation is prepared may be provided
• Pictorial representation can add lot of value

Sr. No. Co. XYZ Business

1 Rubber Indenting: Providing indenting services as a sales
Chemical representative to its AEs

2 Advanced Trading: Importing finished products from its AEs

Interlayers and their resale in India; and

Indenting: Providing indenting services as a sales

representative to its AEs

3 Heat Trading: Importing finished products from its AEs

Transfer and their resale in India; and
Fluids

Indenting: Providing indenting services as a sales

representative to its AEs

4 Texanol Trading: Importing finished products from its AEs

and their resale in India

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Industry Background

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Industry Background
Industry Background consists of the following:
• Classification of the company in an industry - Overview of the Industry
• Current trends in the Industry
• Key value drivers
• Key challenges
• Key competitors
• SWOT analysis
• Regulatory Framework
• Domestic market of the Industry
• Global scenario of the Industry
• Future outlook

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Group Overview and Industry Background – Key points

• Shareholding structure to provide list of all shareholders and should be confirmed with the client every
year

• Financial overview should provide a brief of the financial performance (esp. if the company is listed),
reveal numbers till PBT, mention statutory year ending

• Documenting a solid industry overview is extremely critical – should establish the link between the
position of the taxpayer in that industry, the current market dynamics and the international transactions
entered into by the taxpayer

• When a company provides auxiliary services to main product (e.g. marketing support services to IT
products), then even the industry overview of the main product should be included in the report.

• Industry section should mostly be explained by graphs, charts and flow charts

• Source should be mentioned

• Consistency in presentation (e.g. dates, legal names of the entities etc.)

• Consistency in units (in amounts) – absolute numbers, thousands, millions, crores, etc.
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Corporate and Industry Background – Impact of Current events

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Transfer Pricing Regulation and their
Applicability

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Transfer Pricing Regulations and their Applicability

A. International transaction

• Determine international transaction u/s 92B from Form 3CEB (Nature of Transaction, Name of AE and Value in
currency)

• The section should list the identified international transactions – AEs and value wise

• A specified format for international transaction disclosure is in the table stated below:

International
Name of Associated Enterprise Value (Rs.)
Transactions
XYZ Advisors Pte. Ltd. Provision of advisory services XXX

XYZ Advisors Pte. Ltd. Provision of other services XXX

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Transfer Pricing Regulations and their Applicability (cont…)

B. Associated Enterprises

Step 1
Determine AE as per section 92A from the related party disclosure in the financials.

Step 2
Define the nature of relationship between the assessee and the AE.

Step 3
Determine the brief description of the AE.

A specified format for Associated Enterprises is in the table stated below:

Name of Associated Nature of Relationship as Brief Business
Enterprise referred to in section Description
XYZ Advisors Pte. Ltd. An enterprise which holds, Financial services - Fund
directly or indirectly, shares Management activities
carrying not less than twenty-six
per cent of the voting power in
the other enterprise – Section
92(A)(a)
ABC Company Ltd., U.K. The ultimate holding company of BPO Services/Market
the assessee owns directly or Research
indirectly more than 26% of the
voting power of the assessee and
AE - Section 92A(2)(b)
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FAR Analysis
Functions, Asset, Risk

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FAR Analysis

Rule 10D - Documents to be maintained under section 92D

“(e) a description of the functions performed, risks assumed and assets employed or
to be employed by the assessee and by the associated enterprises involved in the international transaction”

OECD TP Guidelines
“An analysis of the functions performed (taking into account assets used and risks assumed) by associated
enterprises in controlled transactions and by independent enterprises in comparable uncontrolled transactions”

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FAR Analysis (contd…)

What is FAR?

1.FAR analysis is an analysis of functions performed, assets employed and risk undertaken by an enterprise

2.FAR analysis – exercise to determine and document significant economic activities performed by the enterprise
and its AEs in an international transaction.

3.The allocation of these activities between those entities involved in the transaction so each entity can be fully
characterized.

4.FAR analysis should be performed for all the international transactions, including management charges and
financial transactions (if any) – currently, this is not the case

5.Depending on the complexity of the transaction, the nature and scope of the functions performed and sometimes
the value of the international transaction, separate chapters on the major international transactions encompassing
the FAR and economic analysis could be considered

6.FAR analysis to be performed from the perspective of the international transaction in hand and not on the overall
circumstances of the business of the taxpayer. Eg Pharma company having subsidiary in U.S. performing marketing
functions

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FAR Analysis (contd…)

Transitioning from FAR to FARM analysis

•India & many developing countries have traditionally been strong advocates of source based taxation.

•OECD's guidelines in terms of FAR Analysis have been practiced and reliance thereon is also upheld by the Indian
Courts in many rulings.

•Developing countries like China or India have been advocating expanding the scope of profit attribution in source
jurisdiction, based on not just FAR analysis but also considering the 'market' analysis, also referred to as FARM
analysis.

•A renewed focus on 'value creation' post BEPS is accompanied by even stronger consideration of demand side
factors in the TP analysis in some of the developing jurisdictions.

•Applicable mainly for taxing digitalized businesses such as eBay, Booking.com, Uber and Airbnb

•OECD secretariat’s unified approach proposal (pillar 1) – New taxing right – a proportion of deemed residual profit
to market jurisdictions using a formulaic approach

•Eg China - market access-related benefits, in the form of market premium or the contribution by the Chinese entity
in promoting the products in China should be captured in the taxable profits
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Economic Analysis

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Economic analysis

1. Economic analysis is undertaken to analyse the arm’s length nature of the intercompany transactions between a
company and its AEs.

2. The analysis involves the following steps:

 Selection of tested party;

 Selection of the most appropriate method;
 Selecting PLI;
 Carrying out a search, using publicly available databases, for comparable uncontrolled enterprises;
 Computing the arm’s length range/price of the broadly comparable independent companies;
 Carrying out adjustment for differences between enterprises, as may be required; and
 Conclusion.

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Economic analysis (cont..)

A. Selection of a tested party

•Participant in an international transaction with whose reference the international transaction is tested
•Selection of tested party influences the most appropriate method to be selected
•Entity performing the least complex function and not owning any valuable intangible is normally selected as the
tested party.
•Normally least complex entity selected as the tested party as testing of margin of such entity would require least
adjustment.
•Selection of comparable is based on economic characterization of the tested party

Qualitative Quantitative
Analysis Analysis

Financial
Analysis

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Economic analysis (cont..)

A. Selection of a tested party

•When the tested party is a foreign AE, the foreign comparables are used for benchmarking

•No specific prohibition in the TP Regulations regarding use of foreign comparables

•However, the tax authorities during an audit are reluctant to accept foreign comparables

•Difference in Indian GAAP vis-à-vis accounting principles and practices of other countries – major reason why tax
authorities reject foreign comparables

•However, Indian tax tribunals have held that if a taxpayer wishes to consider a foreign AE as the tested party, then
relevant data for comparison should be available in the public domain or should be furnished to the tax
administration. Some of the relevant rulings in this regard are:
- Ahmedabad Tribunal, General Motors India Pvt Ltd v. DCIT (ITA Nos. 3096/Ahd/2010 and 3308/ Ahd/2011);
- Kolkata Tribunal, Development Consultants Pvt Ltd v. DCIT, [2008] 23 SOT 455 (Kol.);
- Delhi Tribunal, Ranbaxy Laboratories Ltd v. ACIT, [2008] 110 ITD 428 (Delhi);
- Mumbai Tribunal, Tata Motors European Technical Centre Plc v. DCIT (ITA No. 907/MUM/2015); and
- Chandigarh Tribunal, IDS Infotech Ltd v. DCIT (ITA 130/Chd./2016)

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Economic analysis (cont..)

B. Evaluation of transfer pricing method

The Act stipulates that the arm’s length price is to be determined by adopting any one of the prescribed methods u/s
92C. There should be a justification for selection of one method as the most appropriate method over other five
methods.

CUP

TNMM CPM
Most
Appropri
ate
Method
Other
PSM metho
d

RPM

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Economic analysis (cont..)

Comparable Uncontrolled Price Method (CUP)

Most Direct Method

Prices are benchmarked without any reference to the profits

Requires strict comparability in products, contractual terms,

economic terms, etc.:

 Strong similarity of products and services

 Geography of markets
 Functions and Risks
 Business strategy
 Contractual terms
 Timing of the transaction
 Volume

Two types of CUPs available –Internal CUP & External CUP

Typically Internal CUP is preferred over External CUP due to

higher degree of comparability

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Economic analysis (cont..)

Resale Price Method (RPM)

•Preferred method for a distributor buying purely finished

goods from a group company (if no CUP available)

•Measures the value of functions performed

•Ordinarily used in cases involving the purchase and resale of

tangible property

•Reseller has not added substantial value

•Packaging, labeling, or minor assembly are acceptable

•Reseller does not apply intangible assets to add substantial

value

•Difficult to apply where goods are further processed before

resale

•Comparability is relatively less dependent on strict product

comparability and additional emphasis is on similarity of
functions performed & risks assumed

Price paid by Sub Co. to AE is at arm’s length if the 25% resale margin earned by Sub Co.
is more than margins earned by similar Indian distributors
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Economic analysis (cont..)

Cost Plus Method (CPM)

Parent Co.
• Compares and identifies markup earned on direct and indirect
costs of production incurred with that of comparable
Transfer Price
independent companies
INR 125
• Preferred method in case- Outside India

- Semi-finished goods sold between related parties India

- Contract manufacturing agreement Sub Co.
- Provisions of services on contract basis

COGS INR 70
• To be applied in cases involving manufacture, assembly or
production of tangible products or services that are sold
/provided to AEs

• Comparability under this method is relatively not as much Co. Z

dependent on close physical similarity between the products Co. Y / AE

• Larger emphasis on functional comparability

Price charged by Sub co to AE is at arm’s length if the 25% mark up on

cost is more than that of similar Indian assemblers
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Economic analysis (cont..)
Transactional Net Margin Method (TNMM)
•Most frequently used method, due to lack of availability of
data for application of other methods

• Examines net operating profit from transactions as a

percentage of a certain base (can use different bases i.e.
Parent A Unrelated Cos.
costs, turnover, etc.)

• Both internal TNMM and external TNMM are possible

• Broad level of product comparability and high level of Outside India

functional comparability

• Applicable for most categories of transaction and often

used to supplement analysis under other methods India

• Grouping of transaction -Relevant controlled transactions Subsidiary B Unrelated Cos.

require to be aggregated to test whether the controlled Net margin 5% Net margin 3%
transaction earn a reasonable margin as compared to
uncontrolled transaction

• Usually regarded as an indirect and one-sided method, but

is most widely adopted

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Economic analysis (cont..)
Profit Split Method (PSM)

To be applied in cases involving-

- transfer of unique intangibles; or

- in multiple international transactions that cannot be evaluated separately

Calculates the combined operating profit resulting from an inter-company transaction based on the relative value of
each AEs contribution to the operating profit

Evaluates allocation of combined profit /loss in controlled integrated transactions

The contribution made by each party is based upon a functional analysis and valued , If possible, using external
comparable data

The allocation of profit or loss under this method must be made in accordance with one of the following allocation
methods:

- Combined profit split method; and

- Residual profit split method

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Economic analysis (cont..)
Other Method
•CBDT has notified the “Other method” vide a Notification

•Applicable from FY 2011-12:

•Rule 10AB - “any method which takes into account the price which has been charged or paid, or would have been
charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under
similar circumstances, considering all the relevant facts."

•Effectively this implies that “quotations” rather than “actual prices” charged or paid can also be used

•To maintain proper documentation specifying the rejection reasons for non-application of other five methods and
appropriateness of the “other method”

•Other Method can be used for following transactions:

- Valuation of shares
- Reimbursements

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Economic analysis (cont..)
Application of the Methods
Method Industry Transactions
CUP Banking Sector 1. Borrowing / Lending
2. Purchase / Sale of various instruments
CUP All industries Royalty
RPM Distributors (Luxury goods, Pharma, 1. Trading of chemicals (purchased from AE and sold to third
Chemicals) parties)
Cost Plus Manufacturing industry Manufacturing activities
TNMM Automotive Sector 1. Import of Components (CKD)
2. Import of CBU
3. Export of vehicles
TNMM Hotel Industry Generally used method is TNMM at entity level, as other
method not most appropriate
TNMM Logistics Industry 2. Rate card (when this arrangement, TNMM is used for
benchmarking)
TNMM Pharma & Healthcare Industry Import of API
TNMM Pharma & Healthcare Industry Clinical trial services
TNMM Pharma & Healthcare Industry & Contract R&D services
IT/ITES
TNMM IT / ITES Provision of services (captive service provider)
PSM Banking Sector Investment advisory
PSM Logistics Industry 50:50 revenue sharing
PSM Social Network platform, video -
streaming platform, E-commerce
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Economic analysis (cont..)

C. Selection of Profit level indicator (PLI)

• Selection of appropriate PLI depends upon:

 Nature of the activities of the tested party,

 The reliability of the available data with respect to comparable uncontrolled taxpayers, and
 The extent to which a particular profit level indicator is likely to produce a reasonable determination of the
income that the tested party would have earned had it dealt with the controlled taxpayer at arm’s length

• Commonly used PLIs (also discussed in OECD Guidelines) are as follows:

PLI Remarks
Gross Profit/ Sales Appropriate for trading activity
Net Profit/ Operating Costs Appropriate for indenting activity
Net Profit/ Operating Assets Appropriate for capital intensive industry

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Economic analysis (cont..)

C. Selection of Profit level indicator (PLI)

• Other PLIs can also be used based on facts and circumstances of the case as follows:

• The choice of the PLI is important, considering the peculiarities of the industry and the transactions
involved.
• During TP audits, very rarely, balance sheet ratios such as return on operating assets, were accepted and
normally the analysis was carried out applying operating margin ratio as the PLI. In the case of
Schefenacker Motherson Ltd v. DCIT (123 TTJ 509), the Delhi Tribunal upheld the use of cash PLI (cash
profit/sales or cost). 38
Economic analysis (cont..)

D. Search Process

Step 1: Identification of companies engaged in activities that are potentially comparable to the activities of tested
party
Step 2: Quantitative analysis – application of filters
Below are some of the primary quantitative filters applied during the search process:
–Data availability filter
–Turnover filter
–Net worth filter
–Trading / Manufacturing / Service Income to total Income filter
–Related party transaction filter
Step 3: Qualitative analysis - analysis of the information contained in the databases and/or annual reports
Step 4: Final validation of the potential comparable companies through additional research and a close scrutiny of
the other sources of publicly available information (e.g. through internet-based research).
Step 5: Selection of PLI
Step 6: Margin of the comparable – range/weighted average
Step 7: Margin of Comparable v/s tested party

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Points to be considered

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 Typical situation which needs greater attention and detail while undertaking
documentation – to build rationale for..
• Consistent losses made by the taxpayer attributable to inter-company transactions

• Significant changes/variability in the profitability of the taxpayer and its associated enterprises

• Large payment of management charges not passing the ‘benefit test’ - documentation to justify that the services are
rendered and benefits accrue to the service recipient

• Losses incurred low margin earned by routine manufacturers and distributors

• Low markup for services

• Incurring huge advertising, marketing and promotional (AMP) expenses in promoting the parent’s brands and products

• Payment of royalty / transfer of intangibles

• Investment in subsidiaries outside India and valuation supporting this

• Unutilized /idle capacity

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 Best Practice for TP documentation

Robust and Best

detailed Practice
Comprehensive
FAR and
and detailed
Economic
Analysis

Transfer
pricing
assessment Application
experience of OECD
Cognizance of principles
Indian & and
overseas guidelines
Consistent
judicial with Master
rulings File

42
Penalties
Section Nature of Penalty Quantum of Penalty

270A Penalty for under-reporting of income as a 50% of the amount

consequence of failure to report international of tax payable in case of under-
transactions, deemed international transactions reporting and a penalty of 200% of the
or SDT amount of tax payable in case
of misreporting

271AA Penalty for: 2% of the value of international

failure to maintain documentation prescribed transaction or SDT
under Section 92D of the Act,

failure to report a transaction, or maintaining

or furnishing incorrect information/ document

271G Penalty for failure to furnish documentation 2% of the value of international

prescribed under Section 92D(3) of the Act transaction or SDT

271BA Penalty for failure to furnish Accountant's INR 100,000

Report in Form 3CEB as required under Section
92E

Penalties also prescribed for non compliance with CbCR and MF requirements 43
 Practical Toolkit to Support the
Successful Implementation by
Developing Countries of Effective
Transfer Pricing Documentation
Requirements

44
Toolkit

• Is intended to assist low capacity countries in implementing efficient and effective transfer pricing documentation
regimes

• Policy considerations and options relevant to designing a regime for transfer pricing documentation

• Suggestion for period of retention of documents and frequency of documentation updates

• Suggests consideration to rules that exempt small and medium sized

enterprises (SMEs) from documentation
requirements or that limit the extent of the documentation to be provided by such entities.

• Reduced documentation requirements for transactions covered by Advance Pricing Arrangements (APA) or safe harbours

• Suggestion of Language and mode of submission of the documentation

• Suggestion of other best practices pertaining to the documentation

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Global Documentation

46
Centralisation approach

Evolving landscape
•Businesses are looking to minimize risks by increasing global consistency of their approach towards transfer
pricing
•This is resulting into an emphasis on process standardization, seeking technology-enabled solutions, and
shift towards global coordination and building centralised control in the way the transfer pricing is managed

Benefit to businesses

Cost efficient Consistency Use of technology Specialized resources

Minimizing overall cost to Alignment and global Leverage on technology- Services from specialists
the business through one consistency/ enabled solutions with wide expertise, skill &
stop shop approach for standardization in facts & & increased process global reach
compliance & approach automation in transfer pricing
documentation

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 Centralisation post BEPS

(Source: Livemint)

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Why Global Documentation

Uniform Transfer Pricing approach for entities across regions

and access to all databases accepted by various tax authorities.
Eliminates inconsistencies and repetition

Quality of services rendered in accordance with international

best practices and standards

Systematic preparation of high-quality transfer pricing

documentation reports covering the relevant group entities in
each jurisdiction

Use of technology and global best practices to deliver

efficient and robust solution to Transfer Pricing needs.

Achieving efficiencies resulting from centralization and multi-

country specialization.

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Global documentation - Future

• No longer can TP documentation be tailored to satisfy the requirements of just one or a few of the taxing
authorities in the world. Rather, documentation must tell a consistent ‘story’ in each country

• Consistency in TP documentation required on account of ICAP (International Compliance Assurance

Programme), coordinated audits: simultaneous tax examinations and joint audits

• TP documentation must convincingly state the principles of profit allocation that apply to every jurisdiction
of the group’s operation, such as whether a particular subsidiary is entitled to a fixed rate of profit or a
share of the residual profit of the group, and why

• Tax authorities, particularly those in emerging or net-importing countries, will have incentives to challenge
any TP documentation that does not disclose the information on the amount and the allocation of the non-
routine profits of the group and impose significant TP adjustments and penalties

• Indian MNEs viz in Pharma and IT/ITES sector should be well versed with TP documentation rules of their
overseas operations as final risk of non compliance lies with the HQ country

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Documentation – OECD vis-à-vis Additional Local requirements
Jurisdiction Additional Requirement

France • a description of the management structure of the local entity (including a distinction of the company’s management bodies and
operational structures, with information on their respective roles and responsibilities and human resources), which can take
the form of a graphic or a diagram, and a local organization chart
• a copy of existing unilateral and bilateral/multilateral APAs and other tax rulings to which the local tax jurisdiction is not a
party and which are related to controlled transactions with the local entity
• a detailed description of the business and business strategy pursued by the local entity (which corresponds to a description of
the objectives pursued, the choices made on the allocation of resources and the funding mobilized and the risks assumed to
achieve these objectives), including an indication of whether the local entity has been involved in or affected by business
restructurings

Germany • A description of the value chain and the value contributions by the taxpayer.
• Information on price adjustments, including those that are corresponding adjustments based on transfer pricing adjustments
originally occurred at the level of a related party or advance commitments of foreign tax authorities.
• Information on reasons for losses and intended actions to resolve the loss situation, if a intercompany transaction leads to
ongoing losses (more than 3 subsequent years).
• names of persons who actually take major decisions which are relevant for the business relations (decision-making power)

Japan • A market analysis that describes the effects of the specific characteristics of the market on the pricing and profits and losses of
the foreign related party transactions
• An explanation of the reasons for performing a multi-year analysis (if conducted), including a logical reason for the number of
years analysed. (The OECD BEPS Action 13 Final Report recommends including this item “if relevant.” What makes it relevant
in Japan is that under Japanese transfer pricing rules, the starting point is a single-year analysis)
• Profit and loss data of the foreign related party, segmented for its transactions with the Japanese taxpayer. (Normally
taxpayers do not have such information available from their financial systems, so each taxpayer needs to decide whether to
try to produce it for the Japanese documentation on a case-by-case basis.)

US • The required documentation under the regulations is divided into two categories, principal documents and background
documents
• A description of alternate transfer pricing methods that were considered and an explanation of why they were not selected
• An index of the principal and background documents and a description of the recordkeeping system utilized for cataloguing 52
and accessing those documents
Thank You

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