In one sense, the transfer pricing of every multinational group is set in stone.

Unlike other aspects of transfer pricing documentation, intercompany agreements need to be prepared in advance, and not after the event.

The OECD TP Guidelines emphasize the role which intercompany agreements (ICAs) have to play in delineating transactions and allocating risk.

And those Guidelines are very clear that risk cannot be allocated in retrospect after risk outcomes are known. Incidentally, this is not just an OECD position. The IRS Transfer Pricing FAQ guidance from April 2020 also emphasizes that “the transfer pricing documentation should address such allocations of risk, how the risk allocations compare to the comparable companies used, and why the resulting pricing is consistent with the agreement.” In other words, TP filings must match the historic agreements and not vice versa.

This means that you can’t re-write the history of the ICAs which a group actually had in place in 2020 and earlier periods.

Each historic financial year is a bit like a layer of rock. The ICAs which were actually in place during each year are trapped in time. If they weren’t aligned with the group’s TP policies, you can’t go back in time to change them.

So if you want your transfer pricing policies in 2021 to be based on legal reality, you need to take urgent action to make sure that you have the right agreements in place.

And as regards TP documentation for 2020, if you’re not sure whether your historic ICAs were fit for purpose, now’s the time to check them out and get clear. Because presenting a TP analysis which is contradicted by the legal implementation is unlikely to build trust with tax administrations.