Transfer pricing documentation is central to the process of justifying and explaining pricing of cross-border transactions. A company’s main purpose in preparing and maintaining documentation should be to place itself in the position where it can readily demonstrate to the Inland Revenue that its transfer prices are consistent with the arm’s length principle.

There is no explicit statutory requirement in New Zealand to prepare and maintain transfer pricing documentation. However, if a company’s documentation inadequately explains why its transfer prices are considered to be consistent with the arm’s length principle, Inland Revenue is more likely to audit those transfer prices in detail. The lack of adequate documentation may also make it difficult for the company to rebut an alternative arm’s length transfer price proposed by Inland Revenue and is likely to result in significant levels of penalties in the event of an adjustment to taxable income.