When is it appropriate to ‘backdate’ Transfer Pricing policies?

We often get asked whether it is legally possible to backdate intercompany agreements. (Answer: it depends.) But what about backdating of transfer pricing policies themselves?

We recently came across the advice below from the TP function of a Big 4 firm:

“We note the new formalised TP policy was signed in ***** 2022 but backdated to apply to transactions from ***** 2021. However, a transfer Pricing policy based on OECD guidance is essentially a risk assessment of the intercompany transactions at the date it is signed (supported by up to date benchmarking). Therefore you cannot backdate a Transfer Pricing policy in any jurisdiction which follows OECD guidelines on transfer pricing (which includes most territories in which the Group operates) to an earlier period. Therefore the current year intercompany transactions could be seen as hidden distributions from the relevant jurisdictions to the ***** parent and could be taxed as such rather than as an intercompany transactions.”

As corporate lawyers who specialise in intercompany agreements and group reorganisations, we don’t advise on TP as such.

But a significant proportion of the groups we support are ‘playing catch up’ in relation to both their TP policies and their intercompany agreements.

Some of them (probably a minority) appear to be in the habit of preparing TP policies after the event (i.e. retrospectively), rather than as forward-looking price-setting policies which price in the uncertainty of risks.

In the words of the OECD TP Guidelines: “The purported assumption of risk by associated enterprises when risk outcomes are certain is by definition not an assumption of risk, since there is no longer any risk.” [para 1.78]

What do you think? In what circumstances would you be willing to ‘backdate’ TP policies, and what health warnings would need to appear in the policies themselves?