Here's an urgent message if you are the proud owner (or author) of Transfer Pricing documentation, but you don’t have the legal documentation (intercompany agreements) in place to back it up. What you have is the equivalent of a big and shiny new truck, but with bald tyres and no brakes. Very pretty, but a dangerous thing if you’re on a steep hill and your truck is heading for some serious curves (in the form of future tax enquiries).
The reason is simple: the OECD’s Transfer Pricing Guidelines are very clear that the starting point for any Transfer Pricing analysis is to “delineate the actual transaction” – and that involves understanding the contractual allocation of risk. If you don’t have written agreements which have been designed for the purpose, the law will write them for you, based on the applicable international conventions and implied terms – and the chances are pretty remote that those implied terms will match the risk allocation and IP ownership you have assumed for the purpose of your Transfer Pricing documentation.
Legal agreements are where the “rubber hits the road”, because they are the legal reality. This reality gets tested every day of the week, when a corporate group is affected by insolvency or regulatory issues. These issues manifest themselves on a legal-entity-by-legal-entity basis, and the legal relationship between group entities becomes very important – especially if you are a director or other officer, and you face potential personal liability.
So what do you need to do as a superhero? Put on your superhero costume, launch yourself into the air with a flourish, use your superhero strength to bring that truck to a safe halt before it crashes, and call us on +44 20 3286 8868 or email us at firstname.lastname@example.org. We will fix the tyres and the brakes (intercompany agreements), before anyone else realises that the good citizens of Metropolis were at ever risk, and before your boss asks any awkward questions.