Universal benchmarking – local and global transfer pricing perspective
- Transfer pricing
- 4 minuty
International groups often prepare global benchmarks, which are used by entities in different jurisdictions for local transfer pricing documentation. This approach ensures consistency in global transfer pricing policies and helps reduce the local costs associated with transfer pricing obligations.
But is there a universal benchmarking that guarantees the defensibility of transaction arm’s length conditions in different jurisdictions?
Transfer pricing analysis: local or global?
A group has a global view of its operations and profitability. It does not differentiate between affiliates based solely on the location of their operations, especially when the parent company provides support services to many foreign group companies.
In such a situation, global benchmarks are a natural and very favorable choice for the interests of the entire group. However, transfer pricing regulations are not harmonized internationally and vary locally.
So how do you prepare a global benchmark so that it is not challenged locally?
International transactions are influenced by many more conditions than domestic transactions. We discussed it in our article on international settlements.
Quality benchmarks
First, ensure the quality of your data. In any benchmark, the data must be reliable, but in a global benchmark, it must also be comparable across countries. How do we ensure this? We prepare our benchmark analyses using information from professional international databases such as TP Catalyst, Bloomberg, and Royalty Range. These databases are used by the largest tax consulting firms and tax authorities.
Group benchmarks are great for financial and licensing transactions, which mostly contain data from foreign jurisdictions. Simply put, local references are most often missing here.
However, global benchmarks can be prepared for all types of transactions, including service or distribution transactions.
A point or a range?
Another important issue is the presentation of the analysis results. You typically determine the arm’s length level of remuneration using various statistical measures, most often the interquartile range, and less frequently the full range, median, or arithmetic mean.
Be particularly careful when your analysis results in the use of the full range. This decision may prompt a more detailed review of the benchmarking analysis by authorities.
The OECD guidelines do not definitively clarify whether every value within the full range reflects arm’s length value. While they do not rule out considering the full range as representative of market performance, they also highlight the risk of imperfections that could distort full comparability of transactions. Conversely, the OECD guidelines state that the interquartile range is a tool that eliminates potential anomalies. It is widely used in Poland and many other countries.
A good benchmark is an up-to-date benchmark
Finally, remember to keep your benchmarking updated. In most countries, this is an unregulated and discretionary matter. However, some countries explicitly require the analysis to be updated annually (e.g. Bulgaria and Hungary). In some jurisdictions, it is permissible to update only the financial data of the sample comparables.
In Poland, the benchmarking should be updated at least every three years. It can be updated more frequently if warranted by significant changes in the economic environment. Polish regulations do not define how to update the analysis. However, it is accepted that updating means preparing a new benchmarking analysis from scratch, including verification of all comparability criteria, obtaining a new sample, and up-to-date financial data.
In conclusion, group benchmarks are one of the options. They must account for local regulations, though. It is worth creating a process for preparing such benchmarks. Before preparing a benchmark locally, determine whether the group has prepared global benchmarks for the transaction. Then decide whether it is better to prepare a local or global benchmark.
An experienced advisor will show the way
Differences between legal regimes complicate the preparation of robust benchmarks. The assistance of an advisor who uses professional databases and has experience in preparing both global and local benchmarks is indispensable.
We are a Polish consulting firm that utilizes international databases. We cooperate with numerous companies, offering support in the preparation of group benchmarks, even for transactions in which the Polish taxpayer is not a party.
We support not only Polish entities but also offer services internationally. Our services extend beyond Poland and Europe; in practice, we have prepared benchmarks for related entities located in Africa and South America, for example. To ensure consistency and compliance with local regulations, we collaborate with a network of partners who specialize in transfer pricing in specific countries.
Our benchmarks always take into account country-specific requirements and practices. The result? None of our analyses has ever been formally challenged, whether in an audit or an APA (advance pricing agreement) proceeding, in Poland or abroad.
Don’t wait for your international transactions to become a problem. Trust our experts in transfer pricing rules who have experience in preparing reliable analyses. Contact us and see how our expertise can help you safely grow your business.
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Magdalena Dymkowska
Partner | Transfer Pricing
Tel.: +48 501 108 261