A transfer pricing audit tends to test—often even before the financial results—the overall robustness of a company’s internal control framework: consistency between operations and documentation, data traceability, and the soundness of methodological choices. From this perspective, “preparing” does not amount to an emergency response, but rather to an orderly process of review and alignment, which can also help strengthen the governance of intercompany transactions.

Defining the scope and key areas of focus

An effective approach starts with reconstructing the scope of the relevant transactions: goods, services, intangibles, financing, guarantees, and any other dealings that may materially affect margins or cross-border flows. Setting priorities is essential: not all items carry the same risk profile, nor do they warrant the same level of scrutiny. A well-reasoned mapping exercise makes it possible to focus the analysis on the areas of greatest materiality and complexity.

Checking alignment between substance and representation

During an audit, particular attention is often paid to the consistency between contractual arrangements, the functional analysis, and actual conduct (decision-making, assumption and management of risks, control over assets, and pricing processes). It is therefore advisable to confirm that the functions performed, responsibilities, and decision-making authority are depicted in a manner that faithfully reflects operational reality, and that any changes in the business model have been promptly captured in the transfer pricing documentation.

Strengthening documentation: consistency, traceability, and updating

Documentation (Master File and Local File) is valuable not only for formal compliance purposes, but above all as technical support for transfer pricing positions. From an audit-readiness perspective, it is useful to ensure:

• consistency with the statutory financial statements, management reporting, and group information;
• traceability of data and reconciliations (from the figure back to the underlying documentation);
• updating of benchmarks, the comparability analysis, and key assumptions. Clear and “reconstructible” documentation shortens the time needed for discussions and reduces the risk that the focus shifts to purely procedural aspects.

Assessing the robustness of results through preventive testing

Beyond methodological accuracy, attention may also focus on the consistency of results over time. It is therefore useful to implement periodic checks: outcome testing, sensitivity analyses on key drivers (volumes, costs, allocations, rates), and an assessment of variances against the policy. Where deviations arise, an orderly approach (adjustments, explanatory notes, policy revisions) helps keep the framework consistent and defensible.

Preparing supporting evidence and governing the audit engagement

Preparation also includes the ability to retrieve supporting evidence quickly: contracts, policies, calculations, benchmark support, functional org charts, decision memos, and process documentation. In parallel, it is advisable to define internal roles and responsibilities (tax, finance, business) and a request-management workflow, in order to ensure responses are consistent, controlled, and aligned.

In conclusion, preparing for a transfer pricing audit means putting in place a set of controls that make transfer pricing a well-governed area: not merely updated documents, but a system in which data, operations, and the underlying technical rationale are aligned. It is this overall consistency that ultimately determines the strength of the defensive position.

Daniele Di Teodoro
managing partner