Transfer pricing TP adjustment – transfer pricing adjustment in capital groups
TP adjustment – transfer pricing adjustment in capital groups
TP adjustment, or transfer pricing adjustment, is one of the key tax issues for capital groups conducting transactions with related entities. The correct application of this mechanism is important not only for compliance with transfer pricing regulations and the arm's length principle, but also for protecting entities in the event of tax audits.
A properly conducted adjustment, based on comparative analyses and consistent with TP documentation, is an important defence argument during a tax audit. Tax authorities check whether taxpayers monitor the profitability of intra-group transactions and take corrective action in the event of deviations from market conditions. TP adjustment therefore, serves not only a settlement function, but also a preventive one, supporting tax compliance and minimising the risk of disputes and sanctions.
What is TP adjustment?
TP adjustment is a correction of settlements between related entities, the purpose of which is to bring the level of profitability in line with market conditions. The adjustment may result in either an increase or a decrease in revenues or costs, and is usually based on comparative analyses (benchmarks).
This mechanism is commonly used in the transfer pricing policies of capital groups as an element of ensuring consistency in intra-group settlements.
Learn about the importance of TP adjustment and transfer pricing documentation in Local File. Find out how correct adjustments protect capital groups from tax risks and tax audits.
For capital groups, proper planning and documentation of TP adjustments are essential to mitigate tax risk. The following should be noted:
- Compliance with regulations – adjustments should refer to actual transactions and comply with the arm's length principle, without artificial income manipulation.
- Inclusion in tax settlements – TP adjustments must be correctly reflected in the books and tax base.
- Consistency with documentation (Local File, Master File) – the documentation should describe the reasons for the adjustment, the calculation methodology and the verification method.
- Market and economic justification – the adjustment should be based on actual comparative analyses and benchmarks, which protects against possible disputes with tax authorities.
Tax authorities are increasingly verifying whether TP adjustments are consistent with the actual course of transactions and whether they lead to artificial income manipulation.
The importance of transfer pricing documentation
Properly prepared TP documentation is crucial in securing the taxpayer's settlements. In the case of TP adjustments, the adjustments should be clearly described in the Local File, which presents in detail the transactions with related entities and the mechanisms for their settlement.
The documentation should indicate:
- the reasons for the TP adjustment,
- the methodology for calculating the TP adjustment,
- the link between the adjustment and the results of comparative analyses.
Inconsistencies between the documentation and the settlements may result in the TP adjustment being questioned
by the tax authorities, increasing the risk of sanctions and additional income assessment. Including the TP adjustment in the Local File increases the transparency of settlements and is an important element of tax prevention.
Tax risk and support from a law firm
Incorrect TP adjustments may lead to disputes with tax authorities, additional income assessments and sanctions. That is why capital groups are increasingly seeking legal and tax advice on transfer pricing.
The law firm supports clients in, among other things:
- planning and implementing transfer pricing adjustments,
- verifying the compliance of TP adjustments with tax regulations,
- preparing and updating TP documentation,
- representation during tax audits and tax proceedings.
