No matter how you document your intercompany accounting transactions—and there are many methods—one critical piece of your transfer pricing documentation will be the functional analysis. Why?
The FAR analysis will be the data that you and your transfer pricing advisor use to calculate arm's length prices, document intercompany transactions, and defend your transfer pricing policies when challenged by tax authorities.
Identifying the role of each entity in a given transaction will make the functional analysis an integral part of your economic analysis. This will identify comparable and the most appropriate transfer pricing method available such that the use of profit is taxed where value is created.
Chief Economist Mimi Song is sharing a few expert strategies. Follow these when constructing your FAR analysis and the rest of your report
should fall into place.