An Indian company has significant transactions with its UAE parent. How would you approach transfer pricing compliance and documentation?

What the interviewer wants to hear

• Identifies all international transactions with associated enterprises
• Performs functional, asset and risk analysis
• Selects the most appropriate method such as TNMM or CUP
• Benchmarks with comparables and tests arm’s length
• Prepares documentation and the accountant’s report, and considers advance pricing agreements

Model answer

I would first map every international transaction with associated enterprises: purchases of goods, services fees, royalties, loans and guarantees, and cost recharges. Then I would do a functional analysis to understand which entity performs key functions, owns assets and bears risks, because that decides how profits should be split. Based on that, I select the most appropriate method: often TNMM for a routine distributor or service provider, comparing its operating margin with independent companies, and CUP where reliable comparable prices exist, such as for interest on a loan. I would run a benchmarking study using databases, apply filters and arrive at an arm’s length range, then test whether the company’s results fall within it. If not, I would advise a year-end adjustment. I would prepare contemporaneous documentation and the accountant’s report required in India, check matching documentation on the UAE side, and for large recurring flows, consider an advance pricing agreement for certainty.

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