Transfer pricing is the pricing of transactions between entities of the same group: sales of goods, services, financing, royalties. Because the two parties are related, the price is set internally rather than negotiated, and it directly determines how profit is split between countries. That is why tax authorities examine it.
The governing rule is the arm's length principle: related entities must transact at a price comparable to what independent parties would have agreed. The OECD guidelines set out five methods for testing it. Three are traditional transaction methods: comparable uncontrolled price, resale price, and the cost-plus method. Two are profit-based: transactional net margin and profit split. The method is selected according to the transaction, not chosen for convenience.
The obligation is documentary before it is arithmetic. Companies above defined thresholds must hold a master file describing the group and a local file describing the local entity's transactions, available to the tax authority. The French thresholds were lowered by recent finance legislation, and penalties apply for failure to produce. Below the thresholds the price must still be defensible; only the formal filing obligation differs.
The recurring weakness is not the method. It is the evidence. Justifying a price means producing, several years later, the cost base actually used, the allocation keys applied, the markup charged and proof that the service was rendered. That reconstruction is what makes a tax audit expensive.
Phacet does not set transfer prices. It produces the trail they rest on: the contract data extraction agent structures the terms, the invoice versus contract control agent flags divergence before payment, and each check leaves an audit trail that audit-ready processes require.
