Transfer Pricing for CFOs and Tax Directors: A Compliance Guide for Cross-Border Expansion

The moment your company has a foreign entity and conducts any transaction with it, transfer pricing rules likely apply. This reference covers what triggers compliance, what it requires, and what it costs to get it wrong.  There is no de minimis exception for transfer pricing transactions.  Every sale of a tangible good, provision of a service, loan or license between related parties requires attention – and may draw the scrutiny of tax authorities on both sides of the transaction.

IRC §482 (US) and OECD Guidelines apply to every transaction between related entities across a border.

The First 90 Days: Transfer Pricing Checklist for a New Foreign Entity

• Map all intercompany transactions— goods, services, IP, financing. List every flow between the US entity and the new foreign entity before anything is invoiced.
• Execute intercompany agreements— one written agreement per transaction type, signed before the first payment crosses the border.
• Select and document your pricing methods — identify the best method for each transaction; record the rationale in a contemporaneous study.
• Run benchmarking analyses— obtain comparable data for each transaction type and confirm your prices fall within the arm’s length range.
• Draft a written TP policy— document the group’s pricing rules, methods, and annual review process across all entity relationships.
• Identify local-country filing obligations— OECD BEPS Local File and Master File requirements may apply in the foreign jurisdiction; confirm with local counsel.
• Assess GILTI exposure— if IP is held or will be licensed offshore, quantify GILTI impact under TCJA and consider whether a cost-sharing arrangement is warranted.
• Evaluate APA eligibility— for significant or complex transactions, an Advance Pricing Agreement provides certainty and eliminates double-taxation risk.
• Track costs — initial costs for the start up of an overseas entity can be substantial, and depending on the transfer pricing method, may need to be underwritten by the Parent entity.

Begin with the end in mind.  Anticipating review by a tax authority is the surest way to be ready when the day comes, and with the following four principles, your company will be prepared.

Common Intercompany Transaction Types and What Each Requires

Method selection is one of the most consequential decisions in a TP study — and one of the most commonly challenged. Even with solid benchmarks and intercompany agreements, without the right selection of transfer pricing method in the documentation, penalty protection may be forfeited.  KBF helps clients select, apply, and defend the right method for each transaction type before the IRS asks the question.

US Transfer Pricing Penalty Exposure Under IRC §6662: What’s at Stake

Work with KBF’s Transfer Pricing Practice

KBF Advisory’s Transfer Pricing Practice partners with CFOs and tax directors to get the structure right from day one — intercompany agreements, documentation studies, benchmarking, and written TP policy — before the first intercompany invoice is issued. Contact our team to discuss your new cross-border structure.