Transfer Pricing for Global Businesses

Conor Kirkland:
Hello everybody. We're just waiting for a few more people to turn up as it stands, and we will be starting the webinar in four minutes' time at five past eleven. In the meantime, please feel free to drop in the chat exactly where you're located. I would love to know. Me and myself, I'm based in Derby in the UK, but I'd love to know where anyone else viewing the webinar is from as well.

Conor Kirkland:
Excellent. Beth, I can see you're from Whitby. I'm actually gonna be going to Whitby in the next month. So looking forward to that as a little bit of a family trip. Read in, London, excellent. Fish and chips. That's it, Beth. I'll be there. I'll be there. Christian chips and Dracula. Anyone new who has just logged in we will be starting the webinar in two minutes time we're just waiting for a few more people to join once again in the chat feel free to mention where you're located and where you're calling in from it's always good to see where people are based Soly Hole, lovely. Got a couple of friends that live in Soly Hole, nice place. Aberdeen. Never been there, but I've heard it's very nice. Kintor. I'm very sorry. I've never heard of Kintor, but it's it is good to see where people are logging in. Glasgow, many times. Chorley

Conor Kirkland:
Yeah, that works for me, Shrek. I think we're all good. So hello and welcome to everyone that is here for today's webinar. This is part of the Commenda Masterclass series and this is transfer pricing for global businesses. What we're going to be exploring in this webinar is an overview of transfer pricing and it's going to be an introduction to what it is and how it affects businesses on a daily basis. And just as the question that has just been raised, will the session be recorded and shared with you afterwards? It will indeed, as well as the deck, which is being shown as well. So if we could go through to the next slide. As a way of introduction, my name is Conor Kirkland and I'm the head of sales and partnerships here at Commenda. I've over 10 years experience in helping businesses expand with cross-border trade originally in logistics and helping businesses ship their goods internationally. I then moved more into the tax compliance software side of things. So ensuring that businesses could stay compliant whenever they were selling overseas, US, over to Asia and all other different areas of the world. I've worked with a variety of different companies in my

Conor Kirkland:
Time, some being startups, all the way up to the multinationals as well. And I've during my time I have worked with brands that have originally started as kind of very, very small brands, just shipping in small warehouses, have now established themselves into large brand names. So very happy to be here today and to really Show you guys exactly what transferred Rasin is and how it works. With me today as well, I also have my colleague Shrey. Shrey, do you want introduce yourself?

Swastik Shrey:
Yeah, great to meet everyone. Thank you all first of all for taking our time today for the webinar. So I am the general manager of transfer pricing at Commenda. I've been with the company for almost three and a half years now and I've been doing transfer pricing for a couple of years and it's really excited to show you exactly how this affects your business and the risks involved. What should you do? And of course like You know, just being transparent about this, Commenda is a platform that helps with everything trans-supply that we'll be mentioning throughout the call. And if there's anything that you need help with, have free consultation calls with myself and all of our experts across the world who have done trans-supply for big fours and multinational companies. And you can get on a call with them, get things sorted out, and we can also obviously, you know, do a lot of these documentation and... Transfer pricing things for you. But yeah, just starting with that. Let's get going.

Conor Kirkland:
Wonderful. So today's agenda, what we are going to be covering is firstly transfer pricing, the basics of what it is, and why it actually matters when you're trading internationally. We're going to be exploring exactly what documentation is required in order to stay compliant with transfer pricing. We will be looking at it in practice. So, what it means in terms of if you are selling goods and services and distribution of products towards your two entities, we're gonna be looking into that. We'll be looking into specific country examples, so how different countries throughout the world actually treat transfer pricing and how you need to stay compliant in those countries. We'll also be exploring transfer pricing and the risks of getting it wrong. Some businesses don't even consider transfer pricing until it's too late. So we will be exploring those risks of getting it wrong. But then also the positive side of this: best practices and solutions for getting it right and staying compliant moving forward. Okay. And at the end, we will have a detailed QA as well. So we've just had a quick question in the chat. Viraj has mentioned that the screen is loading. Okay, Beth was mentioned that's all okay. A few of you can just comment just to make sure that's not a widespread problem. We do want to double check that everyone can actually see the slide deck there. Now, one thing on today's webinar. We don't want to have this fully as a as a lecture where you guys just kind sit back and listen to ourselves. If you do have any questions that come to mind, please feel free to pop those in the chat. And then we at certain points throughout the webinar we will address these questions and then at the end we will tie off any kind of loose questions at the end as well. Okay.

Conor Kirkland:
But moving forward to the next slide. As I've said, this is not a lecture. So audience participation is actually going to be required here. So rather than just listen to my lovely Dulcet tones for the next hour, we do want you guys to actively get involved. So with this, we'll there will be a few polls throughout this. So on the screen in just a moment, we are going to be sharing a question about how familiar are you with transfer pricing as an individual? So is it one, you're a beginner, so you're new. Transfer pricing. Two, you're an intermediate. I know the basics but need more clarity. Or three, advanced, and you can handle TP documentation already. The poll will just be flashing on the screen right about now. And it there is a little section just next to the chat button that says polls. If you can't see that, if you wish just to vote on that now, and we will review this results in just a second.

Conor Kirkland:
Yeah, seems it. So it seems that the majority of you on this call are either beginner or intermediate in terms of your transfer pricing knowledge. However we do have a few people that are also advanced with this as well. To set expectations, today's call is gonna be more of that beginner to intermediary level for transfer pricing. However, if any advanced questions come up, we can certainly either try and answer them on this call or we can answer them our Separate core together as well. So let's go through to next slide. The basics of transfer pricing. So, what actually is transfer pricing? Well, transfer pricing is an accounting method which allows you to set prices for transactions and services between two related entities. If you have a parent company and you have two entities based in two different countries. You need to come up with a method for actually being able to sell your goods and services between the two of these. And this is the act of transfer pricing. Now, the key foundation of transfer pricing is what's known as the arm's length principle. What this means is that two related companies underneath the same umbrella group. Should treat each other with at this arm's length level, which means that they're treating each other as two separate companies. Through this act, it means that you are trading in a compliant way. It means that you are legally moving money and services in accordance with local tax authorities, and it eliminates certain companies being able to get favorable tax rates on goods and services that they're actually sending between two countries.

Conor Kirkland:
So it's extremely important to stay compliant in this way and be OECD compliant in that regard. There have been instances where many businesses have been caught out for incorrect transfer pricing practices, and it can be very costly towards your business. So it at its core is this accounting method for being able to set the pricing between your two entities and ensure that you trade compliantly each and every time you sell.

Swastik Shrey:
Awesome. I shall take that up. Cool. So the foundation of transfer pricing is having a set of documentation, which is mandatory in different jurisdictions for you to maintain in order to be transfer pricing compliant. So whenever like Logan, like Conor told us, if we have money moving between two entities, and these can also be for loans, these can be royalties, these can be for services or goods. Anything like that, we need a transfer pricing agreement in place, right? So there are like some foundational documents, which are an inter-company agreement, a benchmark, as well as a local file. And then there are like advanced levels of reporting, which would be a master file or a country by country report, which we touch upon as well. But the main thing that we're looking at here is that if you are transferring money between your two entities, you need to document that really well. You need to have a compliance posture which needs to be solidified in an inter-company agreement policy. And this policy basically says, if I am sending money to my other entity, I need to ensure that there is a 10 % markup, let's say, for whatever goods I sell to that other entity. And now where does this 10 % come from? We get this from a study called a benchmarking study. And like the name suggests, what it does is it benchmarks your company, given the sector, given the geography, given the size against other companies in that geography that are also selling to a similar jurisdiction. So for example, if I have a UK and a US entity and I'm selling between those two entities, I will take other companies that are also a part of a similar transaction and see at what percentage is are like all the other UK entities selling to the US entity. And then we find a range. There is a lower quartile and an upper quartile, which is our benchmarking range. And you can choose your markup to be between this range. And then again, we solidify that compliance posture and an inter-company agreement policy. Now, these two things are mandatory for you to have.

Swastik Shrey:
Even before you make your first transaction, right? Especially the inter-company agreement policy. If you expect to send a lot of money between borders, then you should definitely get a benchmarking study done as well. And you also need to ensure that you review these every year and benchmarks have to be refreshed, for example, at different frequencies in different countries. But since I see a lot of people here are from the UK, you have to refresh it every three years, right? So you need to maintain these documents before your first transaction and by the time your corporate income tax due date arrives, which for example in the UK is the CT 600. Along with that, a local file is also a reporting document that you need to maintain. What is a local file? A local file basically documents everything that you've done transfer pricing related between your entities throughout the year. For your UK entity, let's say. So you're reporting transactions, you're reporting your policies, you're reporting your benchmarks. You're basically saying that, hey, here's everything that we did. And these are our, again, compliance postures. And you submit that to the government. Now, the intercompany agreement policy and benchmark are not things that get submitted to the government. It is only the local file that gets submitted. Of course, they're an integral part of the local file as well. And now when you go one step above to the master file level where you have a group structure and you your group makes more than I think 750 million euros in Revenue then you have to maintain a master file as well Which basically says which basically does what a local file does but for the entire group, right? You're documenting everything happening across the group right between all the entity pairs And country by country report is basically you reporting the detailed financials of these companies country by country, right? So by the time you're a big entity with big company with, you know, a billion dollars in turnover, you would have to maintain financials for every inter company transaction in detail and mention that in your country by country report. So yeah.

Swastik Shrey:
I also see a question from Sarah who's asking at what point do we need a local file? As soon as your company is mature enough that you have a significant number of transactions happening, you're moving money, you're moving more than let's say 50 to 100,000 pounds between your entities, right? That's when you should get a local file. There is no mandate for you to keep this, but if you get audited, You need to present a local file within 30 to 60 days depending on the auditor. And so it's recommended that you keep this ready again before your corporate income tax due date every year and make sure you refresh it every year as well so that you're ready for all sorts of audits. I hope that answers the question and let's move forward.

Conor Kirkland:
Thank you for that, Shrey. So Shrey's given us a bit of an introduction there to actual all those different forms of documentation which is required when you are outlining transfer pricing. But as he said, the core part of this and fundamental that sits at the bottom of it all is the intercompany agreements. Now, intercompany agreements are the binding contracts between your two related entities, and it outlines exactly what you are going to be doing in terms of trading between these two different entities. Okay. So these contracts, ICAs, are generated in order to define what the scope of goods and services are that are being sent between these two entities. The majority of ICAs which are generated are usually for services and distribution, so services being sold between the two, but also distribution, I.e., the act of selling on behalf of another one of your entities. Okay. So these are the most common ways that ICA agreements are actually settled. Now, when you go through the process of getting an intercompany agreement, they need to be compliant with the organization for economic cooperation and development, also known as the AECD. The way that the OECD works is that they almost act as Interpol, I like to call it, where they sit above kind of all different countries and they oversee how these transfer pricing agreements are actually designated.

Conor Kirkland:
Now, with this intercompany agreement set out between your two entities, it will set out the price and the method of rate of how you are actually going to be selling goods and services off to your other entities. It allocates exactly where the funds the sorry the functions and the risks and assets between the two entities are I.e. Where is the IP actually being held is where is their entrepreneurial party for this so which is the main party between the two it sets out the rights and responsibilities and payment terms between the two entities but it must be in place before that first major transaction. So as Shrey said, a local fire is typically required when you are sending anywhere between fifty thousand to a hundred thousand pounds between your entities, but the ICA should be in place before it. Okay. Now going through to the next slide. Intercompany agreement, why does it matter? Well, as said previously, it is the foundation for your transfer price and policy as a company. Okay. So if a tax authority asks you more questions about your transfer price and policy, they'll always go back to your intercompany agreement and they'll want to explore exactly how you have set this up as a company. They want to know exactly what it does and how it's being used for analysis of the goods being sent and services being sent between your two parties, and most importantly, who bears the risk upon this. It documents where these key assets and the IP are located. Once again, through that, who is the entrepreneurial party, who is the main party in this relationship.

Conor Kirkland:
And then also it outlines once again how the risk is shared between your two entities. So when ICA is actually established, there'll always be an entrepreneurial party with this. And that is the main party where everything to do with that kind of IP key assets is all resides, and it needs to be established exactly how you are trading with the other entity. Now, one common thing that we have seen as Commenda and as a whole is something that's known as the permanent establishment risk, C E risk. This is where activities that are occurring abroad, separate to where your two entities are located, can actually establish a risk of taxation. A common example we see is, say, for instance, there's a UK entity and a US entity, but the decision maker for the business, the CEO, whoever it may be, actually resides in Spain, say, for instance, for the majority of the year. Well, this creates what's known as that permanent establishment risk. When you have a well-drafted and inter-company agreement, it lowers the risk of accidentally having a PE issue. And it means that you incorporate this into your overall ICAs between the two entities.

Conor Kirkland:
If documents have been sent off, in that example given off to Spain for signature, or business decisions have been made in Spain for signature, but it's for the two UK and US entities, there can be issues where that taxation and violence could be made actually in Spain as well. And many businesses do get caught out on this. So when you are establishing your intercompany agreement, it's very, very important to actually keep the roles consistent, where people are located, and how your business actually operates and where decisions are actually made. And a good inter-company agreement will factor in this part of permanent establishment. So, as part of the next poll on this, we have a simple true or false question. Once again, the poll will be flashing on the screen in just a moment. And this one is relatively simple. So, transfer price and documentation is only required if a tax authority orders you. Is this A true or B false? The poll is just going up on the screen now, and we will check the results in just a moment.

Swastik Shrey:
I'm looking at Conor. I think we practically gave the answer away Conor, but that also means everyone's paying attention because everyone has said false so far, is correct. You do require TP documentation as a protection, right? A key word that we use in transfer pricing is defensibility. You need to have defensible documentation. For when you get audited or to show how you're, again, taking your compliance posture. And the fines are just not worth it. Mean, it's a very straightforward thing. Again, like I mentioned earlier, Commenda can handle this for you within days. And it's just not worth it to take the risk of not having these documentation set up. But I'm to see everyone had the right answer. Okay, I will move on to this slide. I will just answer Jay's question quickly. He has asked, can you not just create documentation retrospectively? Jay, that's a great question. I'll tell you an interesting case that happened with one of our customers. You would assume you can, and in some cases, auditors would also approve it. But then the problem that arises is, let's say initially you weren't transferring money in a compliant way. Right? So there was no markup, for example, or there was a lower markup that you were transferring. And now suddenly you've put a new documentation into place that says for the entire previous fiscal year, instead of 5%, you should have been giving me 10 % markup or something like that. Now you suddenly have a cash burden to send this money from entity A to B and then pay more taxes and stuff like that. It just creates a lot of accounting problems. In many cases and in many strict countries such as India, they would reject this retrospective document creation. So again, it's just a very straightforward agreement. I'm sure when you deal with, you know, other companies or your partners, you always have an agreement in place. It's just the same thing, you know, get an agreement in place. If you have a lot of transactions happening, get a benchmark study done and that's it. That's the basics of what you need to do. Most of us, I'm sure there are a lot of people with...

Swastik Shrey:
You know, bigger companies that would require local files, master files. But yeah, I hope that answers your question, Jay. Cool. Moving on to transfer pricing methods. So Conor briefly mentioned that, again, there are like a lot of methods that exist, right? You can do things for royalty agreements, for loans, et cetera. But two of them cover 95 % of all the work, which is services and distribution. What does that mean? Country A selling software service or support service or accounting service to Country B. And the other one is Country A sells on behalf of Country B. Right? Those are the two straightforward things. And then the methods that are involved within those two types of agreements, you can see on the screen. So the first one is cost plus. These are for all the service arrangements. So what that, like the name suggests, It's basically cost plus a certain markup on top of how much it cost you to do the service. So Conor, my friend has two entities. One is in the UK. One is in Brazil and his Brazilian entity does software services for his UK entity. Right. And if the Brazilian entity requires, you know, some amount of money to do that, we just do cost plus a certain amount. And then the UK entity transfers that. I have great examples in the next slide, so I'll come to that quickly. And the second one is called TNMM, which is the Net Margin Method for Distribution Agreements, in which case, if I am selling on behalf of my parent entity, I will take all the money in, all the revenue that I get, save some of it, right, as my margin, my net margin, and send the rest back to my parent, right? Can you move to the next slide? So I have very simple illustrations to show this. Commenda itself is a great example, right? Commenda India does software services for Commenda US, sells it, right? And then Commenda US pays Commenda India. How much? The cost for Commenda India to do these software services, which can be payroll, office rent, you know, stuff like that, is $100,000. And on top of that, let's say we decide that the markup should be 20%.

Swastik Shrey:
So the US would be sending India $120,000. Now, this additional $20,000 is pure profit for the Indian entity, which means that is the amount that the Indian government will tax at the corporate tax rate in India. And the US government, based on, again, whatever profits the US entity has made, will tax them. Can we move to the next slide? And now we'll switch the places, in which case, Commenda India, again, still is like doing the development part, but we are the principal now. And then Commenda US becomes the distributor, right? And then it sells to the world on behalf of the Indian entity, right? And to do this sale, Commenda India sends it all the goods. And once Commenda US has done the sale, it will retain a certain percent, in this particular example, 3 % out of $120,000 and send the rest back to India, right? Okay, coming to the practical example, right? You have two, three entities, you're transferring money between them. Again, like very straightforward, get on a call with a consultant, can be Commenda. We will tell you what is the right method for you, what is the right thing to do for you. And we will put in a benchmark study in place to find this markup that we have been taking as an example. And then we will solidify it in an inter-company agreement. And that's all you need to do. And you can start transacting between your two. Cross-border entities. Cool. I hope that makes sense. If anyone has any questions based on your specific situations, based on your specific geography, I would be happy to answer those. So please drop them in the chat. Let's go to the next slide. This is my favorite part. If you don't remember anything else from this webinar, this is the only thing that you need to remember for transfer pricing. What is the basis of deciding this markup? Because let's say you're distributing on behalf of your other entity in some country, but you're taking a lot of risk to do that or you have a lot of assets there, you have a lot of people there, you have to pay them. If you only retain 3%, how will that work? So where did the 3 % come from? Well, all of that depends on what we call substance in transfer pricing.

Swastik Shrey:
Which is made up of three things functions, assets and risks. Okay. And the more of these things that you have in a country, the more amount of money it keeps. Right. And the only thing that really matters is like how the money split between the two countries, because that is the amount on top of which your government will charge you. Right. And this was in fact, transfer pricing was enforced by governments to ensure that they get their fair share of like taxes, right? Because if all the work is happening in the US, but it is being sold in the UK or something like that, the UK also needs its fair share of taxes, right? So we're looking at functions. These can be manufacturing, marketing, sales, R &D, everything like that. These are the functions that the particular entity plays. Assets, which can be physical machinery, IP, brand recognition, trademarks, and then risks, right? Market and demand risk. Credit and collection risk. The most common one that we see is, let's say I send goods to you, but like storing those goods is my responsibility, so that's my risk, right? Or if I'm selling on your behalf, and if a customer is angry and I have to refund him the money, and that is my responsibility, that's my risk, right? And based on this, this markup is decided, right? So it's not like you can look at your friend's company and say, hey, he's also doing the same thing. Should I just copy his markup? You cannot, right? It has to be specific to your sector, to your geography, most importantly, your FAR analysis, right? Which is what we do when we're deciding the markups. Cool, let's move to the next slide. We got another poll Awesome. I think everyone will be able to answer this What is the hardest part of transfer pricing for you right now? I'm sure these options have one of you know, your major pain points if not Drop that in the chat. We can talk about that as well But yeah, you'll be you'll be seeing the poll come up on your screen right about now. Yeah

Conor Kirkland:
Just so we know what those answers are as well. It's one setting the right price between our entities, two, drafting intercompany agreements. Quite a lot of businesses do struggle with that. Three, creating required documents, either local file, master file. Four, staying compliant with rules in each country. And also there's an option as well if you haven't started just yet. So please do find the poll just in the chat function.

Conor Kirkland:
Just while everyone's answering there, Shrey, common question I often get asked, and I know you do as well, is it not good enough just to send items to our own entities and only stick one or two pounds extra on the price for this?

Swastik Shrey:
Yeah, I mean, you started with the arm's length principle, right, Conor, which basically says, hey, you have to treat your entity like it's not yours, basically. Right. So if I am selling something to you, Conor, I wouldn't just give it to you for a pound or two, right? I'm going to charge you the full amount plus some gravy. And that's basically what you need to do when you're transacting between your entities as well. And this is basically mandatory for all the countries now, even the ones that don't come under OECD. Again, just so that again, they can ensure that they get their fair share of taxes.

Swastik Shrey:
Awesome. Okay, we have the answers in. % of you, one third of you say that staying compliant with the rules in each country is the most difficult part and almost an equal split between every other option. And you all might think I know magic, but can we go to the next slide? So the next slide is about country examples, where I address this exact major pain point about staying compliant with rules in each country. That is truly the most difficult part. In fact, even at Commenda, we have experts from different parts of the world because one person cannot know it all. And these rules keep changing so quickly. I'm going to give you some major examples of the kinds of things that can happen. And then... Of course, if you have any specific questions about where you're from, we would like to answer that as well. I see a lot of people are from the UK and UK and Europe have very similar laws. Like I said, when you get audited, you have to present a local file or a master file within 30 to 60 days of request. That is a local requirement. The US does not have a local file requirement, for example. But they have a separate DP documentation requirement that you need to do. And so it's not just that, you know, and a lot of companies, by the way, even in the U S do maintain a local file because again, it's a, it's a compliance posture that you're taking. So you take the documentation and create a local file or that, but in the UK you have to write and another specific UK thing is you have to refresh the benchmarking every three years and stuff like that. In the US, we have is if you have foreign subsidiaries, foreign owners, stuff like that, along with the federal tax filings, there are additional forms that need to be filed specifically form 5471 if you have a foreign subsidiary. And then TP documentation also must exist by the federal tax filing date. And again, these have to be aligned with the treasury regulations, not specifically a local file.

Swastik Shrey:
But yeah, very important rule. And then in India, for example, there is an actual filing that you need to do where an accountant will go in, look at all the transactions and like sign a document which needs to be submitted to the government. It's called Form 3CEB from this fiscal year is going to be renamed to Form 44 in India. And this is once you exceed one crore INR in transactions. And you also have to file it by 31st October, which is the federal equivalent tax filing date in India, the corporate income tax filing date in India, basically. So as you can see, three very different geographies, Germany requires a thing called a transactions matrix. Italy requires a separate set of documentation altogether. Australia, I still haven't been able to figure out, but I'm sure we have a transfer pricing experts. At commenda who can figure that out. So these are nuances In different countries and it's very important to know those in order to be compliant But a benchmark and an intercompany agreement, however, are very standard you need them from day zero in all the jurisdictions Cool moving on Conor, why don't you take this up?

Conor Kirkland:
Thanks, Shrey. So we've talked about the complexities that you have on a per-country basis with this and the different requirements in these countries. But many businesses don't actually think about the risks of getting transfer price and wrong until it's too late. We have a variety of different customers that come to ourselves with requirements. Typically they're either just about to enter into transfer pricing for the first time and they'd like a little bit of support with it. Alternatively, they've been doing it for many years and they want to find a more efficient way of running it, of which we help with. But the kind of third category we get on transfer pricing is people that ring us up and say, We have been audited, we do not know what to do. Do help us very quickly and you don't want to be that company that is in that situation so with this transfer pricing businesses can typically get audited and they have to produce a lot of documentation usually within 30 to 60 days. Particularly that happens in the UK anyway. And with this, the authorities will be asking for copies of your transfer pricing documentation so the ICAs, the benchmarking study, as well as a list of transactions behind this. Typically when we have customers that contact us in that desperate panicked They've never got their ICAs in set up whatsoever. They've never done a benchmarking study. They haven't even been really recording the transactions between their two entities.

Conor Kirkland:
And when you're on that tight time frame, it can be very hard to get all this information together to get yourself compliant in order to pro provide these results. And as Shrey mentioned earlier on, on point to Jay's question, yes, I mean, in some sense, it could be done retroactively, depending on the country, but not every country is going to accept that. Now, with this, the key parts of it is that Tax adjustments and penalties can be made to your goods and services when you have not had this documentation in place. If you are already expecting a certain level of cash flow as it stands, and then suddenly the tax authorities reprice what your transaction should have been and determine that you owe not only back taxes, but interest and penalties on top of that. Then this can have a significant blow on your cash flow. And to some companies, then this can be very, very detrimental to their operations. So ensuring that you have this already set up correctly will obviously prevent this and ensure that you won't have this kind of level of back taxes, interest, or even penalties being applied out of nowhere. With this as well comes the audits and the scrutiny towards this. So we typically find that companies that are in a desperate panic and have been audited They suddenly realize we haven't had anything together. And if their finance teams are already working on a separate audit for a different reason, or they're already snowed under with a different project, suddenly out of nowhere, they have to focus all their efforts on this transfer price in the audit. Okay. Obviously this is very time consuming, it means a lot of late nights, it means a lot of trying to correlate exactly what transaction falls to

Conor Kirkland:
Which entity and actually establishing how much tax should have been due in that instance. So it can be a very time-consuming and expensive task in that regard. Third point, and I've seen this happen myself, is investor red flags. When you have weak TP governance within your companies. Say for instance you are trying to get funding in the US for instance investors can kind of sit back and they tend to get a bit kind of cold feet are on investment when TP has not been up to standard. Okay. So if that is your main aim when you're entering into a new country, make sure you have TP set up, transfer prices set up and from the early days and kind of early operations. And it makes you look a lot more favorable when you are trying to be open towards investors. But secondly as well keeps you compliant from day one. So it's extremely Be good for that. And then kind of tying in with the audits and scrutiny, a costly retroactive cleanup. If you get everything correct from the very start, whilst there is an initial cost to get these different parts of intercompany agreements up and benchmarking studies, it's gonna set you in good stead for the future. And it means that rather than you desperately trying to recover. Your kind of stance in your transfer policy within a set time frame. Say, for instance, you've been told to produce these results within 30-60 days, rather than desperately scrambling, have this all set up from the very outset, and it will limit the amount of back taxes you owe, the interest you owe, and the penalties on top of that. And more than anything.

Conor Kirkland:
Who needs that level of stress where you have a set time frame that in some in some instances is out of your control for getting an ICA set up or a benchmarking study? Okay. Not to mention a local file. So obviously Commenda can help with all these things, just as a bit of insight, but please ensure however you wish to treat your transfer pricing, make sure that you do set yourself up for success and get it right from the very start. Go through to the next slide. Commenda as a whole, we talk about the best practices and pitfalls for from this. So on the back of what those risks were, ensure that you do have reference set up from the very start. It will in it will mean that you don't have this kind of year-end scramble every single time and a high audit risk. We know that there's penalties and interest that can be applied, as well as back taxes, for getting this incorrect. So getting this set up from the very start is the best way to do things. And it also ensures as well that you won't have these large adjustments to previous transactions and additional tax exposure. We've got a real-world example here, and this is very common for Commenda. A US company didn't benchmark payments to an offshore Indian entity, and with this they faced a 150k adjustment and they had just two weeks to compile all the docs for this. So, not only did they have additional taxes to pay, but only two weeks to compile all the docs. Okay. And that is one, a lot of stress, two, it could be out of your control, and three, there's kind of serious repercussions from getting that wrong. So ensure that you do have these different levels set up. And stay compliant. So start early with the ICAs at Incorporation, benchmark annually, so use reliable control. Comparables to defend your transfer pricing, I.e. That kind of harm's length principle and exploring the two entities as separate companies. And then finally, there are ways such as Commenda to automate and integrate your ERP systems.

Conor Kirkland:
So Shamus plug here. Commenda, we plug into your ERP or accountancy platform, we monitor all your transactions for you. We hold them to a standard of the intercompany agreement and benchmarking study that you have in place. That can even be from an outside provider, not necessarily from Commenda, but we can then notify you on your level of compliance and make you aware of when you kind of slip out of compliance with your transfer price and policy okay so this is just what one way you can stay compliant throughout the year but with this quick example this happens quite regularly seed stage startups they want to set up in a few different Countries they used ourselves to set their TP agreement, use ourselves to do the incorporation of companies, but then we also generated the ICAs and local files for them as well as doing benchmarking. So we did that for one company in just a week to be transparent. Most ICM benchmarking studies through Commenda usually take Given on depending on what the company is, about three to four weeks usually, we can turn that around. But if you have a low level of complexity, sometimes we could do that much, much quicker for you. So just a bit of an insight into that. But also the key part I want you to take away from this is stay compliant from day one when you do open these different entities. Going through to the next slide. So kind of spoke a little bit about what Commenda is, but just as a

Conor Kirkland:
A definition to who we are and what we do. Commenda, we operate an all-in-one global compliance platform. So we help businesses manage their global operations internationally all from one platform so this is everything from incorporation so get set up with a brand new company in a different country direct services which are behind this as well as bank account opening we help with all of this We also help with everything to do with the indirect tax side, so everything to do with VAT, GST, sales tax, we help with registrations, the calculation of these taxes, and we also help with the filings of these taxes as well. When you do set up a new entity, you have the corporate taxes that come with it. We help with all of those, depending on the different countries. We help with the transfer pricing side of things. So everything to do with the intercompany agreements, benchmarking studies, and also operational compliance. So making you aware of when how compliant you are to your policies. But this is all contained within our one global compliance platform, Commenda. And this can manage all your different entities worldwide, as many as you want or you need. We have some companies on the platform that are in the region of several hundred in that regard. But with this, our platform can help you stay compliant in each one of these nations. So we have compliance calendars for each and every country where you operate in. Say, for instance, you require a local file in India, and then one in the UK, wherever it may be. Our platform can notify you of all these requirements, as well as your indirect tax side and your corporate taxes as well. And we provide schedules for each and every one of these countries as well as all the requirements needed precisely for your business. We can help either assign those taxes to people within your business or partners you already work with, or alternatively, Commenda can also.

Conor Kirkland:
Help you by filing these taxes ourselves on your behalf so we can do local files we can do efforts to do with indirect taxes and we can do the corporate taxes as well so if any of this is of interest to yourselves please feel free to reach out to us just going through to the next slide Sheree is going give us a bit of an insight into how we actually work in terms of transfer pricing and how we can help businesses like yourselves. So Sheree, over to you.

Swastik Shrey:
Yeah, and I also really want to answer all the questions in the chat. Okay, I will be sharing my screen and I'll also answer your questions. Let's see. Okay. There we are. Is my screen visible, Conor?

Swastik Shrey:
Yeah, I'll just zoom in. Awesome. Welcome to Commenda. Everything that Conor just spoke about, all in our navbar, all other things that we do, we are specifically talking about transfer pricing here. So I'll show you a bit more things around that. But basically, again, Commenda is a global expansion partner. So we can help with all of these things. So as soon as you come in, you can see all of your legal entities set up. Right? The tax charts, you can also see all of their details. So for example, again, a lot of people from the UK here. So click into the UK entity and you can see that we have all of your details, whether it be formation documents, business IDs, your locations, registrations, credentials, tax, bank accounts, ownerships, right? Entity documents, everything that you can basically have. And how this helps us is when we're doing transfer pricing, it's important for us to know about ownership, important for us to know about functions and assets and risks. And we can get a lot of that from Commenda already. We also have all of your key persons here from different countries. We also have your compliance calendars, which like Conor mentioned, we tell you about all your corporate income tax filings, your payroll filings, your entity compliance, even your transfer pricing filings. And along with due date and so you never miss anything at all. If you want, we can handle that entirely for you as well. So we will handle all of your corporate income tax filings, your accounting, etc. In different countries. And then I used to dread doing this, by the way, to be completely honest, because who is going to onboard all of this information about a country into like Commenda and that. So my favorite thing right now obviously is the Commenda AI Chat that we have here, which you can use to ask, what are my filings in the next 30 days? Am I missing something? Is something coming up? In fact, why don't I ask how many TP agreements do I have? And not just that, you can ask a lot more detailed things such as, we'll come back to this, such as what are my markups in different countries?

Swastik Shrey:
And benchmark set up or not, do I need this? Also like specific questions. So on Commenda, you have all of your policy agreements stored here. We have an entire process for you to fill a form and then give us some information based on which we'll create an agreement for you. Plotted here, you can see all the relevant information here. It is also linked to a benchmark. So you can go to the benchmark directly and you can see all the inputs on the benchmark as well. You can also view the benchmark. Inside the app. And so what all you have to do is, know, when you have an active, for example, distribution agreement right here, assign it to, I'll assign it to myself. And I have one step here, which is to provide some business information about again, assets and risks. I fill up a simple form and this is super simple to fill again with command.ai. And I also have access to an expert at all times. So I can just say, Conor, and that will go to Conor directly if he was the transfer pricing expert, it would have gone to him. And then we also have operational transfer pricing, where we pull in all your transactions from an ERP, look at the intercompany transactions, and see if you are compliant with this markup that you have decided. And then we also have local and master files in different jurisdictions. Again, just making sure that we have all the local requirements jotted down correctly. So that's basically what we do. I'm just going to go back here and see. So right here, like, Command.AI can just tell me, hey, you have four policies. You know what? If I drop in another one and say, can you upload this, it will upload it with very high accuracy, with the right method, with the right percentage. It can onboard entities for me. It can create ownership structures. It can do everything. And so for me, I just stick to Command.AI for all my TP stuff as well. And I would like to show more, I'd go back to the questions because, that's what people came for. So I'd like to answer those. In the four minutes that we have left. So Seeker asks, what are the basis for authorities repricing transactions? That's a great question. Three magic words, functions, assets, and risks. Let's say you thought it should be 10%. The authorities can reprice it saying that, hey, no.

Swastik Shrey:
You have a lot more stake in this, right? You have a lot more functions. The CTO sits in that entity, right? In that country. And you have a lot more risks and you also have an entire factory, you know, 10 % won't cut it. So they will reprice your transactions. And then you have to, again, like Conor mentioned earlier, it's a major risk because, you know, you have to send money suddenly, affects your cashflow. It's a big hassle. And so when we do your functions, assets and risks for analysis, We ensure that we get that right so you never have to be repriced. Viraj asks, what are the most common transfer pricing mistakes you see financial teams, finance teams make in the general ledger or Greenland? I'm not sure, probably general ledger. Viraj, I think accounting-wise, transfer pricing is very straightforward. Once you have a percentage set, you can go ahead and always just ensure that people are making sure that happens. One mistake that does happen is when you start having different types of transactions, like let's say initially you got an agreement for services, but later you also started selling goods, you cannot work with the same markup on that. And sometimes what accountants would do is they would like club those together in your GL, the goods and services and use the same markup for them. You cannot do that. You need to have another agreement for a different transaction type. That's a great question. Jay asks, can we just do this in Cloud? I wish. I would love to work two days a week, sit at home and enjoy if Cloud could do this. The main part, Jay, as you saw throughout the presentation is that there are a lot of nuances, country-specific things, also based on your business, based on your functions, assets, et cetera, that we need to take care of. And the most difficult part for Claude to do is the benchmarking study, right? We take very big databases like Moody's, like TP Catalyst, like Bloomberg, with financials from hundreds of thousands of companies, shortlist around a thousand or two thousand from them, and then run an analysis on them based on their sector, their geography, and see which are the right comparables, which also is a great segue into Dan's question, who was asking, how do you find the right comparables? So Dan.

Swastik Shrey:
We pull in all of this information from, like our software pulls all of this information from a Bloomberg terminal or Moody's or stuff like that. And then once I have all of this information, we will go ahead and run our analysis on it to make sure that we have the right comparable companies. Again, if we get that wrong, authorities can reprice us, which we don't want. So we run a thorough analysis and also give you a thing called a rejection matrix, which tells you why did we reject 990 companies, right? Why did we choose these 10? Something like that. So as it stands, Claude is just not able to do that, Maybe by Fable 10, we might have it. Maybe. I would be happy to see that. And Jay is also asking, does it work in the UAE? It does. Very interestingly, though, the UAE is a special case because it does not have too many companies in specific sectors, right? So there might be a lot of financial companies, but there might not be a lot of sports drinks companies, right? So in which case the UAE authorities specifically allow us to take comparables from different regions as well, which is the exact kind of nuance, Jay, that Claude can't figure out. You know, it would go ahead and look at all the companies in just UAE, but they don't have the right comparables. And then your benchmark study wouldn't be right. But that's a great question. And then finally, Dan asks, can you do this comparable analysis for loss making startups? Absolutely. We often see this in automobile industries where the markup can also be negative, by the way. If the distributor who is selling these cars, for example, takes a lot of risk, which they do, right? Because they're selling cars. There is like inventory, there's so many risks attached to it. If they are a full risk distributor and the entire company is loss making. They also can just, you know, just to like offset their losses, can go ahead and have a negative markup and pay lesser to their parent, which is an interesting case. But yeah, to answer your question, we definitely do comparable analysis for loss-making startups. Awesome. We have some key takeaways. Again, like I said, you must have transfer pricing documentation from day zero. Do not skip that. Very straightforward.

Swastik Shrey:
Takes very less time. If you're still unsure, book a call with us. It's free of cost. I would love to help you out. Productive timing, again, already mentioned. Cost and risk optimization. We will do this for you. Save your time, save costs. We typically charge a lot lesser than a big four. We also take a lot less time. Again, we're tech company. We optimize for this. We also have a lot of experts. Who help us do this. And then, yeah, always ensure that, you know, you don't go to your local accountant and do something like this because they might be aware of the local things, but they will not be specializing in cross-border stuff. So just like get done from someone trustable. India, I hope you all got some value out of this webinar. Thanks a for joining. Also, we do have CPD credits for this webinar. Conor, you have something to add there?

Conor Kirkland:
Sorry, I was just I was more just looking at the end of the questions, but yes, this will firstly this qualifies as one hour for a verifiable C P D. But also to answer the question that's been quite recurring in today's session, we will be sending out this slide pack for yourselves, the slide deck. So you can certainly refer back to this. Also on the final slide here, if you do wish to book in a call with anyone on the Commenda team and discuss your transfer pricing at length, feel free to just scan this QR code now and you can enter your details and you can get booked in With the team. My email address is going to be on there, as well as Shrey's, so feel free to reach out to us, or you can reach out to us on LinkedIn as well. More than happy to kind of take any questions or if you want to take a discussion further. But as Shrey said, thank you very much all for joining today's session. Hope it has been of benefit to yourselves, and I wish you all a pleasant day. Thank you all.