What are the best practices for documenting your benchmarking process and results?

Crafting compelling benchmarking analysis starts with a clear, concise executive summary that sets the stage for your pricing narrative. Documenting search strategy is like drawing a map of your journey. Show/explain what search filters you used, and how you refined your results. This clear trail helps in making your choices more credible before tax authorities. Also, think of each comparable as a character in your narrative. What makes them similar to your tested party? What sets them apart? Your documentation should bring these 'characters' to life, explaining how they fit into your pricing tale. Don't just list criteria – explain why they matter. If you excluded a company, share the reasoning as if you're revealing a plot twist.

Best practices for documenting benchmarking include: Detail Process: Clearly describe your benchmarking process and criteria. Source Transparency: Document all data sources and comparables. Methodology: Explain methods and adjustments used. Analysis: Provide rationale for comparables and adjustments. Record Keeping: Keep detailed records of calculations and comparisons. Regular Updates: Update documentation to reflect market or business changes. Regulatory Compliance: Ensure documentation meets local regulatory standards. This approach ensures thoroughness and supports audit defenses.

Another consideration to add to documenting and benchmarking objective is to keep in mind OECD guidelines on what constitutes an "arms length" transaction between related subsidiaries and the parent company. Also, consider what risks level does the organization want to take in terms of maximizing transfer pricing rates at the 1st, 2nd, 3rd or 4th quartile percentages in terms of comparing itself with related organizations within the industry and overall industry best practices.

Benchmarking objectives should align with the company's overall business strategy to ensure the analysis reflects its operations and direction. Moreover, consistency in applying objectives across similar transactions helps avoid discrepancies that might raise red flags during an audit.

Reliable data sources are crucial for benchmarking. Not all databases work equally well across industries or regions or for all transactions. For example, TP Catalyst - Orbis is reliable for EMEA, S&P Capital IQ for North America, and Prowess for India, LoanConnector for financial transactions, RoyaltyStat for Brand name / know-how and so on. Experienced professionals can help choose or map the best database for each transaction.

When presenting benchmarking results, it’s crucial to consider the audience. While a tax authority may require detailed technical data, internal stakeholders (eg., finance or legal teams) might need a more high-level summary that focuses on key conclusions and business impact. Tailoring the presentation style and level of detail based on the audience helps ensure that the findings are understood and actionable.

Explring from a UAE perspective: a) As the UAE’s TP framework is new, companies must frequently review and update documentation to stay compliant with evolving regulations. b) Finding local comparables in the UAE can be difficult, so many companies rely on regional or global data. During the review phase, companies should ensure they have adequately justified their use of non-UAE comparables. c) UAE-based companies often have complex cross-border transactions, so at the time of reviewing benchmarking documentation it’s essential to ensure compliance with global standards while documenting UAE-specific cases.