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In recent years there has been a substantial increase in the number and size of transfer pricing (TP) disputes with tax authorities worldwide. Alongside an increasing importance for taxpayers to be able to sufficiently demonstrate that they have taken reasonable care in managing their TP, tax authorities are expanding their lines of enquiry to include assessing how they implement, execute and monitor the application of their TP policies. Through adopting this forensic focus, tax authorities are commonly finding discrepancies between a taxpayer’s intended TP policy and the TP outcomes following execution and, as a result, placing an onus on the taxpayer to demonstrate that they have taken reasonable care of its TP implementation / execution processes.

This article provides an insight into how tax authorities are interrogating TP implementation along with the nature of evidence that authorities typically expect a taxpayer to retain in order to demonstrate they are taking reasonable care to ensure their TP policies are properly implemented and operationally effective.