Fundamentals
Transfer Pricing Adjustment
A transfer pricing adjustment is a correction made by a tax authority, or voluntarily by a taxpayer, to align the reported profit of a related-party transaction with an arm's length outcome. Adjustments increase or decrease taxable income and can lead to additional tax, interest, penalties or double taxation risk.
Tax authorities typically propose an adjustment after reviewing a group's documentation and benchmarking analysis during an audit, concluding that the pricing applied does not reflect what independent parties would have agreed. Adjustments can also arise from year-end true-ups, where a business voluntarily corrects pricing to.
When one country makes an adjustment, it can create double taxation unless a corresponding adjustment is granted in the other jurisdiction involved in the transaction. Mutual agreement procedures under tax treaties, or advance pricing agreements agreed in advance, offer routes to resolve or prevent these disputes and restore a.
In practice
What matters when applying transfer pricing adjustment
- Corrects reported profit to reflect arm's length outcomes
- Can be authority-initiated or voluntary year-end true-up
- May trigger additional tax, interest and penalties
- Risks double taxation without a corresponding adjustment
- Mutual agreement procedures help resolve cross-border disputes
Frequently asked
Common questions
What triggers a transfer pricing adjustment?+
Adjustments are typically triggered when a tax authority's audit finds that intercompany pricing falls outside an arm's length range, or when a taxpayer's own year-end review shows results deviating from the benchmarked range, prompting a voluntary correction before the audit even begins.
Can double taxation from an adjustment be avoided?+
Double taxation can often be relieved through a corresponding adjustment in the other country involved, negotiated via mutual agreement procedures under a tax treaty, or avoided altogether by securing an advance pricing agreement before the transaction takes place.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.