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Preparation of reports on controlled transactions, preparation of documentation for the justification of transfer prices (transfer pricing, TP)



Report on controlled operations.

We have experience of drawing up reports on controlled transactions, which is supplied to the tax authority by May 1 of the year coming after the reporting period. Depending on the number of controlled operations, the volume of a report may take on average from 10 to 100 pages.


Our experts have drawn up  reports  for the transport and trading companies. The cost of work on the compilation of a report depends on the number of types of transactions, the number of contracts on them, the number of transactions for each contract, as well as on changes in prices during the year.



Documentation on justification of transfer prices


Preparation of documentation confirming the transfer pricing transactions that were introduced in the report of controlled operations, is the most time-consuming process. On the level of qualification and the information provided in the documentation the ability to avoid the accrual of income tax at the tax inspection of transfer prices depends .
In the preparation of documentation, our specialists test the rates in all possible ways:

  • comparison with the internal operations
    • a request to the relevant authorities in the various sources of information
    • testing by all five methods of transfer prices
    • if necessary, with the use of international databases (Amadeus, Ruslana)
    What should documentation of the justification of the transfer prices of controlled transactions contain?

Let us consider one of the options of the documentation of transfer pricing of controlled transactions.
At first we mention in the documentation the data related to persons and activities of a group of related persons, which includes the company.


Here we describe data on the related individuals who are counterparties of controlled operation; provide a general description of the group (considering the parent company and its subsidiaries), including the organizational structure of the group, a description of the economic activities of the group.

The following is a section on the Company’s activities.
This includes the description of basic competitive advantages of the Company, who are the company’s main competitors.
The following are the sections describing the market of goods, services, a section on operations, pricing section ( how a price is formed,  what is included in the price).

The next section includes a functional analysis.
The conclusions obtained at the stage of functional analysis, will be used when selecting the method of transfer prices, as well as in the economic analysis.
This section provides an analysis of the functions, which are implemented by the parties of controlled operations.

1) Implementation of strategic management
2) Equipment assembling and / or installation of equipment
3) Transportation of goods
4) Implementation of quality and quantity control,
5) Storage of goods
6) Insurance
7) Preparation of necessary documents
8) Administrative function (including financial and legal support)
9) Provision of advice, information service.


Further, the functional analysis considers risk analysis.
1) Entrepreneurial (commercial) risk
2) Manufacturing risk
3) The risk of changes in market prices
4) The risk of reducing the level of consumer demand
5) The risk of impairment of inventories, loss of consumer qualities of goods
6) The risk of loss of property or property rights

7) Credit risk
8) Risks associated with the quantity and quality
9) Foreign exchange risk, including the risk of changes in the UAH exchange rate to foreign currencies
10) The risk associated with the lack of results of carrying out the research and development work
11) Investment risk
12) The risk to cause harm to the environment

Analysis concludes a description of tangible and intangible assets, which are involved by the parties of controlled operations.
The results of the functional analysis of controlled operations are summarized in the table on which we can conclude which party performs more functions and carries more risks.
Next, after the functional analysis is a section on choosing a method of transfer pricing. At the beginning of this section is a description of the criteria for determining the compatibility of operations.

Here are the main elements of  controlled operation and an operation which is compared:
characteristics , quality and quantity of goods / works / services.
functions that are performed by the parties of operation,
risks and the distribution of responsibilities between the parties of operation,
assets that are used by the parties of operation:


the constant business practices and conditions of contracts signed between the by the parties of operation,
economic conditions of the parties’ of operation activities, including an analysis of the relevant product markets:
characteristics of commercial strategies of the parties of operation:

The remainder of this section discusses the possibility of the use or non-use of all five methods, a description and justification of the use of any of the methods for determining the normal price for controlled operation, the causes and conditions for the use or non-use of each method:

  • Comparative method of uncontrolled price (sale analogue);
  • Resale price method;
  • Method of ” cost-plus “;
  • Method of net profit;
  • A method of profit distribution.

At the end of this section is a conclusion on the selected method.

After the section on selecting the method there is a section of the economic analysis.
At the beginning of this section there is a comparative analysis of the company and a description of  the procedure for selecting potentially comparable companies, from what sources, databases the comparable companies were selected. How, and by what criteria the comparable companies were selected from the database.

The following describes the steps of the comparative analysis


Identification of potentially comparable companies.

The financial analysis.


At the stage of identification of potentially comparable companies the work carried out in the selection of comparable companies is described, namely:
1) Checking the comparable commodity markets.
2) We select the appropriate type of activity using the International Classification of activities named NACE.
3) Checking the company’s independence.

4) Checking the status (operating company or not).
5) Checking the date of establishment of the company to cut off companies that have recently been created and are in the early stage of development.
6) Analysis of revenues from sales for the corresponding period in order to eliminate those companies that have not declared revenue  more than in one year.


Next at this stage is a description of additional selection criteria using Excel functionality and compatibility checking of activities within the boundaries of controlled operation.
Here we describe the additional steps of the research that were carried out using Excel.
1) Checking the comparability in terms of revenue.
2) Checking the data adequacy, published on the company website or other public sources.
3) Checking the functional profile of the company comparability.
4) Formation of a final sample of comparable companies.

At the conclusion of the work on this stage (identification of potentially comparable companies) is the table of comparable companies selected from a database and other open sources (company names, a brief description of the activity are indicated).
Next, a second phase of economic analysis is Financial analysis.

At the same time we describe for each comparable company (based on the selected method for price calculation) appropriate margins with the calculation of the weighted average profitability indicators for each of the analyzed period – 3 years.
Based on retrieved data calculations the minimum and maximum range of profitability are carried out in accordance with the procedure, approved by the Cabinet of Ministers from 04.06.2015 № 381.

In the final section, which is called “Conclusions”, it is stated – if the price is in the market range or not. Is it necessary to adjust income tax.


Auditing firm "Triada»
tel. (050) 73-73-000,