As the March and June financial year-end approaches, businesses engaged in cross-border transactions with associated parties must review their transfer pricing positions. Ensuring transactions are conducted at arm’s length—meaning they reflect the pricing that would occur between independent third parties—is critical for compliance with Inland Revenue (IR) and OECD guidelines.
Proper transfer pricing planning helps businesses align financial accounts and tax returns, avoid potential tax disputes, and reduce exposure to penalties. This guide outlines who needs to consider transfer pricing, how to ensure compliance, and the necessary steps to take before year-end.
Does Transfer Pricing Apply to My Business?
Businesses must consider their transfer pricing obligations if they have cross-border transactions with related entities. These could include:
- Intercompany sales or purchases of goods
- Provision of services between related companies in different countries
- Intercompany loans or financing arrangements
- Use of intellectual property, trademarks, or other intangible assets
If such transactions exist, they must be priced as if they were between unrelated parties. Inland Revenue expects businesses to demonstrate arm’s length pricing through recognised transfer pricing methodologies.
How to Prove Transactions Are at Arm’s Length
To comply with New Zealand’s transfer pricing rules, businesses must:
- Use standard transfer pricing methods accepted by Inland Revenue and OECD.
- Maintain transfer pricing documentation to support pricing decisions.
- Ensure documentation is contemporaneous – prepared before filing tax returns.
Having proper documentation is essential, as it provides penalty protection in case of a dispute. If Inland Revenue challenges a business’s pricing approach, detailed documentation helps demonstrate reasonable care and compliance, potentially reducing penalties.
Do Small Transactions Require Transfer Pricing Documentation?
Yes, all cross-border related party transactions require documentation, but the level of detail should align with the risk, complexity, and materiality of transactions.
- High-value or complex transactions require comprehensive documentation.
- Smaller or lower-risk transactions may require simplified documentation while still covering key compliance requirements.
Regardless of transaction size, businesses should ensure their transfer pricing policies are documented to mitigate compliance risks.
What Steps Should Businesses Take Now?
To ensure transfer pricing compliance before year-end, businesses should:
- Review transfer pricing policies to ensure transactions align with arm’s length principles.
- Prepare necessary documentation before filing tax returns.
- Assess the appropriate level of compliance – ranging from intercompany agreements to full transfer pricing reports.
- Engage with tax professionals if unsure about compliance requirements or documentation standards.
Transfer pricing compliance is a critical component of international tax planning. Proactive preparation before year-end ensures that businesses avoid unnecessary tax adjustments, penalties, and Inland Revenue scrutiny.
For businesses with cross-border related-party transactions, now is the time to review, document, and adjust pricing strategies to ensure compliance. Consulting with a transfer pricing expert can provide tailored guidance and help businesses determine the most appropriate approach for their specific circumstances.
Source: Deloitte
The content in this blog is intended to provide general insights and should not be regarded as professional advice. Each business situation is unique, and we recommend consulting with a professional for specific guidance. At Black Arrow Business Studio, we specialise in accounting and consulting services designed to support your business’s growth and success. Feel free to contact us for expert advice and customised solutions.
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