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A transfer pricing database is a structured source of financial and company data used to identify comparable companies, transactions and profit-level indicators for transfer pricing analyses. It supports benchmarking under the arm’s length principle by providing standardized information that tax consultants can screen, analyze and document when determining and defending transfer prices.
Tax authorities often scrutinize the reasonableness of transfer prices. Consequently, they require documentation substantiating the appropriateness of the prices established in accordance with the Arm's Length Principle.
The OECD Transfer Pricing Guidelines provide the international framework for applying the arm’s length principle to cross-border transactions between associated enterprises. The OECD also maintains Transfer Pricing Country Profiles covering domestic rules on transfer pricing methods, comparability analysis and documentation requirements.
These regulations also encompass documentation requirements, which are subject to ongoing tightening. For companies, this translates into a persistent increase in reporting obligations.
Companies are legally obligated to prepare transfer pricing documentation. This documentation, which often relies on data available through specialized databases, is crucial for demonstrating the appropriateness of transfer prices.
The specific requirements for this documentation vary depending on the chosen transfer pricing method.
These documents are also known as benchmark analyses and must be submitted as part of group tax audits. The level of acceptance of these analyses by tax authorities can have significant tax implications. If the authorities reject the figures provided by companies, substantial back-tax payments may result.
A key component of such documentation is the so-called profit level indicator (PLI). This serves as the financial foundation for many transfer pricing benchmark analyses and is therefore essential for their accuracy.
The OECD’s documentation framework emphasizes the importance of information supporting the transfer pricing method and the comparability analysis (OECD, 2014).
The figures in transfer pricing documentation, often derived from database data, frequently serve as the focal point for discussions with tax authorities. These figures directly impact the amount of tax payable in the respective jurisdiction.
Companies naturally seek to minimize their tax burden, while tax authorities aim to ensure that taxable profits are allocated consistently with the arm’s length principle.
The negotiations between companies and tax authorities can be arduous, often characterized as “haggling,” “horse-trading,” or “bazaar.”
Irrespective of whether the data is accepted by tax authorities, the taxable entity must fulfill its documentation obligations. This entails creating transfer pricing documentation that incorporates appropriate comparable data.
Failure to comply with these obligations can significantly weaken the taxpayer’s position in discussions with tax authorities. However, negotiations may not be necessary; tax authorities may simply accept the data.
A swift and cost-effective approach to determining the requisite data and satisfying documentation requirements is to leverage the smartZebra Transfer Pricing Pro database.
Moreover, other databases from diverse providers also contain benchmarks and profit-level indicators.
These databases primarily differ in terms of pricing, usability, data coverage and the availability of information on private, i.e. non-listed, companies.
The permissibility of using benchmarks derived from publicly traded and/or private companies hinges on two factors:
Major American providers offer relevant company and financial data as part of broader data platforms. The extensive scope of their additional data offerings is reflected in their acquisition costs, which can be substantial.
Note: The provider descriptions above reflect the positioning and scope relevant to this article; database coverage, pricing and product functionality can change over time and should be checked with the respective provider.
For Bureau van Dijk, the current corporate context is worth updating: BvD became part of Moody’s, and Orbis is now presented by Moody’s as a global comparable-data resource covering both private and listed companies. Moody’s currently states that Orbis contains information on more than 635 million companies and also provides dedicated tax and transfer pricing functionality.
The choice of database should not be based on the number of companies alone. For tax consultants, the relevant questions are:
The OECD’s current transfer pricing framework places comparability analysis at the centre of applying the arm’s length principle, making the quality and relevance of the underlying comparable data particularly important (OECD, 2022).
While established providers such as Bloomberg, Capital IQ, Refinitiv and Orbis remain broad data platforms, more specialized alternatives offer a different proposition for tax consultants.
These alternatives can be more cost-effective while providing a targeted focus on the data required for transfer pricing benchmarking.
The user-friendly nature of specialized databases can help tax consultants generate the data necessary for transfer pricing documentation more efficiently. The appropriate choice ultimately depends on the required data coverage, the relevant jurisdiction, the transfer pricing method and the level of documentation required.
Explore smartZebra’s transfer pricing database to support benchmarking and transfer pricing documentation.
Tax authorities require transfer pricing documentation to verify that the prices between related companies align with the "arm's length principle." This documentation helps substantiate the fairness of these prices and ensures compliance with regulations.
The profit level indicator is a key component in transfer pricing documentation as it serves as the financial benchmark for tax analyses. Its accuracy is essential to ensure that benchmark analyses are reliable and acceptable to tax authorities.
Negotiations can be challenging and often resemble "haggling" or "horse-trading." Companies aim to minimize their tax burden, while tax authorities seek to maximize tax revenue. Accurate data from databases is critical in these discussions.
Major providers include Bloomberg, CapitalIQ, Refinitiv, Bureau van Dijk, D&B Hoovers, Creditreform, and smartZebra. Each varies in focus, cost, usability, and the availability of data on private versus publicly traded companies.
The smartZebra database is user-friendly, does not require prior training, and offers a competitive price-performance ratio compared to other options, making it a cost-effective solution for generating transfer pricing data.
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