The benchmarking study is a verification tool to argue that the transactions with the affiliated parties took place at a similar price compared with the open market. The argumentation and substantiation of the prices practiced in the commercial and financial transactions through the performance of a benchmarking study with the affiliated parties protect us against the adjustments of transfer prices.
The preparation of a benchmarking study, to be incorporated into a transfer pricing file, should not be considered only from the perspective of a legal requirement.
The multiple „faces” of the benchmarking study
Firstly, the benchmarking study is a verification tool to argue that the transactions with the affiliated parties took place at a similar price compared with the open market.
The argumentation and substantiation of the prices practiced in the commercial and financial transactions through the performance of a benchmarking study with the affiliated parties protect us against the adjustments of transfer prices.
But even these transfer pricing adjustments are determined through a bechmarking study performed by tax inspectors for over a number of years, generating additional payable profit tax and additional interest and penalties, if any differences occur between the transfer pricing levels of the payer in comparison with the ones found as a result.
Moreover, although non-compliance, incomplete or deficient preparation would attract fines and / or additional fees from the tax inspections teams, they also have an impact on: performance evaluation indicators, investment and operational decisions, cash flows, profit tax.
Thus, we cannot ignore the usefulness of the benchmarking study as a management tool, as management is most interested in finding out where the prices charged in the transactions with the affiliated parties are positioned.
Internal preparation of the benchmarking study
With sufficient effort involved, it is possible for a taxpayer to prepare the benchmarking study with internal resources. The most significant advantage of this approach is the fact that information is easy to reach through the company’s employees.
There are also the cases of multinational companies that employ entire internal departments of specialized individuals that take care of the preparation of the benchmarking study and transfer pricing documentation and regulations’ compliance. But imagine this comes at a significant long-term cost.
Externalization of the benchmarking study
Not much can be said about the subjectivity surrounding pricing in competitive conditions. No two people consider this determination the same. Experienced transfer pricing professionals are adept at analyzing transfer pricing from a variety of perspectives. Such an analysis has the advantage of being prepared to address the perspectives of other parties in the context of a benchmarking study and to formulate an appropriate defense in advance.
Finally, the perspective of an outsider has a certain quality that an insider can never offer. There is a reason why listed companies are required to have their financial statements audited by an outside party. Even large corporations with internal resources dedicated to transfer pricing almost always rely on external advisors to increase their capacity.
So even if the taxpayer chooses to prepare the transfer pricing benchmarking study with internal or external resources, they will have gained a strong verification and management tool in their corporate toolbox and even might have saved themselves a significant amount.
