Transfer Pricing Documentation vs. Risk Assessment: What’s the Difference?

Transfer pricing documentation and transfer pricing risk assessment are often mentioned together, yet they serve different purposes in a company’s compliance strategy. Many multinational enterprises (MNEs) assume that preparing a TP Doc automatically satisfies risk-related requirements. 

However, global guidelines (OECD recommendations and various country regulations) treat them as separate but complementary processes. 

This highlights the importance of understanding where documentation ends and risk evaluation begins, helping you feel more confident in your compliance strategy. Getting this distinction right can prevent unnecessary disputes, penalties, and extended audit timelines. 

Why Transfer Pricing Documentation and Risk Assessment are Not the Same 

Many companies assume that once they prepare their transfer pricing documentation, the work is complete. However, OECD guidance makes it clear that documentation and risk assessment are two different activities. 

Documentation Explains the Transactions 

A TP Doc presents the tax authorities with the details of your intercompany dealings. It focuses on: 

• What transactions took place 
• How pricing was determined 
• Whether the chosen method follows the arm’s-length principle 
• Supporting financial and functional analysis 

Its purpose is to demonstrate compliance, not evaluate exposure. 

Risk Assessment Evaluates Exposure 

A transfer pricing risk assessment looks for signs that something might attract an audit, such as: 

• Unusual margins 
• Shifts in business models 
• Transactions with higher scrutiny 
• Gaps between policy and actual conduct 

It is recommended to perform risk assessments before updating or preparing TP Docs to help companies anticipate potential issues, making you feel more in control and prepared. The process is proactive, not reactive. 

Having Documentation Does Not mean you are Low-Risk 

A complete TP Doc does not guarantee a low-risk position: 

• You can have strong documentation but still show financial outcomes that raise questions. 
• You may pass a risk review, but you still need proper documentation to meet legal obligations. 

They work together but cannot replace one another.

READ MORE:

• Transfer Pricing Methods in Indonesia: Guide for Multinational Businesses
• How TP Catalyst Enhances Your Business’s Transfer Pricing Strategy
• Transfer Pricing Documentation (TP Doc): What You Need to Know

Transfer Pricing Documentation vs. Risk Assessment 

Both processes support better transfer pricing compliance, and understanding their complementary roles can give you greater confidence in your overall strategy. A TP Doc explains your pricing, while a transfer pricing risk assessment helps you identify potential challenges. 

Below is a simple comparison to highlight the key differences. 

Aspect	Transfer Pricing Documentation (TP Doc)	Transfer Pricing Risk Assessment
Purpose	To show how intercompany transactions were priced and justified	To identify areas that may attract tax authority scrutiny
Focus	Facts, analysis, and supporting data	Risk indicators, patterns, and potential weaknesses
Timing	Done annually to meet compliance requirements	Can be done anytime, often before or after preparing the TP Doc
Outcome	A formal report for regulators	An internal understanding of exposure
Key Activities	Functional analysis, benchmarking, method selection	Reviewing margins, business changes, and high-risk transactions
Who Uses It	Tax authorities and auditors	Internal tax teams, advisors, and CFOs
Can It Stand Alone?	Required by law; must exist on its own	Complements documentation but cannot replace it

How TP Documentation and Risk Assessment Work Together 

Each process supports the other when used in the correct order. A risk assessment highlights key issues, such as unusual margins or sensitive transactions, before the documentation is created. This makes the TP Doc more accurate, focused, and defensible. Together, they form a cycle: 

• The risk assessment identifies what needs attention 
• The documentation provides the reasoning and evidence 
• Ongoing monitoring keeps everything aligned 

Companies using both approaches tend to experience fewer disputes and more predictable compliance outcomes. 

Should Companies Start with TP Documentation or Risk Assessment? 

While many businesses begin by drafting their TP Doc, the process should start earlier. Here’s the practical sequence used in most transfer pricing frameworks: 

• TP Strategy: Understand how the group works and how transactions are priced. 
• Risk Assessment: Identify where authorities might challenge you. 
• TP Documentation: Record, support, and justify your pricing. 
• Internal Controls: Monitor margins, update data, and keep practices aligned. 

So, if the question is “Which one comes first?” the answer is simple: Risk assessment should come before transfer pricing documentation.

Optimize Your Transfer Pricing Strategy with InCorp 

Starting with a risk assessment leads to stronger, more reliable transfer pricing documentation and fewer surprises during audits. 

InCorp Indonesia (an Ascentium Company) is TP Catalyst–accredited and uses the platform to deliver standardized, OECD-aligned documentation and analyses, helping businesses stay compliant and reduce exposure. 

• TP documentation (Master File, Local File, CbCR support) 
• Transfer pricing risk assessment 
• Benchmarking and economic analysis 
• TP planning and policy development 
• Compliance review based on PMK requirements 
• Ongoing monitoring and audit support 

Fill out the form below to make the transfer pricing process easier, more reliable, and aligned with both Indonesian regulations and global best practices.

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