In today’s business landscape, it is common to encounter commercial operations that involve relationships between related parties. Due to the various services required to execute a specific operation, it becomes necessary to engage multiple companies with distinct corporate purposes to achieve the desired outcome.
This has led to heightened scrutiny of transfer prices, which are the prices negotiated in transactions between companies or related parties. These transactions may encompass the transfer or exchange of various assets, such as machinery, services, financing, and even proprietary assets like trademarks or patents.
Transfer pricing regulations are applicable to companies engaged in transactions with related parties, regardless of their domicile. In other words, these regulations apply both nationally and internationally. The foundation of these regulations is that the taxable income of these companies must always be determined based on the market value principle. This means that transactions between related parties should be based on what independent third parties would charge under similar circumstances.
In this regard, companies conducting transactions with related entities must calculate their taxable income and allowable deductions, taking into account the prices agreed upon in transactions with unrelated third parties.
It is crucial to consider specific key points and processes for companies involved in transactions with related parties. While not all of these points are legal requirements, they provide clarity to business groups regarding their obligations and potential vulnerabilities.
Therefore, it is recommended to carry out a due diligence process that includes, at a minimum, the completion of the master declaration. This declaration should contain comprehensive information about the business group.
Additionally, an analysis of the local declarations of the companies, an evaluation of the group’s country-by-country outlook, and an assessment of price compliance in the supply chain are advisable.
Furthermore, before commencing operations of this nature, it is prudent to implement a transfer pricing application plan. This plan allows for the effective execution of the transfer pricing policy, encompassing processes, technologies, and personnel training, all aligned with the company’s strategy.
The successful implementation of transfer pricing policies is essential for companies. It provides a clearer picture for decision-making in the daily operation of the company and allows for proper tax planning within the business group. Constant monitoring of regulations and their reforms enables companies to maintain compliance with the rules, thereby avoiding penalties and review procedures by the tax authorities. In this regard, the Tax & Administrative Law team of Vega, Guerrero & Asociados can provide guidance to your company from the initial stages of policy and process implementation in transfer pricing. Additionally, our Tax & Administrative litigation team can offer support and advice for filing the appropriate defense should the authority impose a penalty or initiate an audit procedure.