Step-by-Step Guide on Conducting a Transfer Pricing Risk Assessment

Cross-border fund transfers between group companies can open up a host of tax and compliance challenges. That’s why conducting a transfer pricing risk assessment is critical—not just to stay compliant, but to maintain operational efficiency and cash flow predictability.

Whether you're a global startup with a cost center in India or a multinational scaling operations across regions, a well-executed transfer pricing risk assessment helps you stay on the right side of tax regulations and avoid costly penalties.

In this guide, we break down what a transfer pricing risk assessment involves, how to conduct one, and how platforms like Xflow can help mitigate key operational risks in the process.

A transfer pricing risk assessment is a process where companies evaluate the tax, compliance, and operational risks involved in pricing transactions between related entities—typically across borders. It ensures that the pricing of services, goods, or IP between a global HQ and its subsidiary (e.g., an Indian cost center) aligns with the arm’s length principle as required by tax authorities.

Startups and global businesses use this process to avoid double taxation, delayed fund receipts, audit triggers, and unexpected compliance issues.

Many startups set up their product and tech teams in India while raising capital abroad. These Indian entities operate as cost centers and raise invoices to their HQs for the services they provide. However, without proper transfer pricing practices in place, the movement of funds becomes:

• Unpredictable (thanks to FX volatility and opaque banking charges)
• Non-compliant (missing key documentation like eFIRA or intercompany contracts)
• Delayed (due to multi-step SWIFT transactions and manual bank follow-ups)

That’s where a well-structured risk assessment—and a modern cross-border payment solution like Xflow—can make a difference.

Let’s walk through a 6-step process tailored for startups and growing businesses managing global-to-India fund transfers.

1. Map your intercompany transactions

Identify all services your Indian subsidiary provides to the parent entity—engineering, product development, marketing, admin support, etc.

Create a transaction map that details:

• Parties involved
• Nature of the services
• Invoice frequency
• FX considerations

With Xflow: You can schedule predictable INR receivables by locking FX rates up to 90 days in advance making this mapping exercise easier and more reliable.

2. Define your functional and risk profile (FAR analysis)

Understand the role each entity plays:

• Functions: What work is performed?
• Assets: Are there intangibles involved?
• Risks: Who bears operational or market risks?

Misalignments in this structure often raise red flags with tax authorities.

3. Check arm’s length pricing and markup

Benchmark your transfer pricing markup against industry norms. Your CA or tax advisor can help identify a suitable rate using accepted methods like:

• Transactional Net Margin Method (TNMM)
• Comparable Uncontrolled Price (CUP)

Once the markup is agreed upon and the invoice is raised, Xflow allows you to instantly calculate the INR receivable—based on mid-market rates and a transparent 0.5% transfer fee.

4. Review documentation and regulatory requirements

Ensure you have:

• Intercompany agreements with detailed service descriptions
• Invoices with proper TP markup
• Transfer pricing study reports
• GST filings (if applicable)
• FIRA or eFIRA documents

5. Assess operational and financial risks

This is where most startups face issues. Some common risks:

• FX exposure: Fluctuations in USD-INR rates can cause shortfalls in payroll or vendor payments
• Payment delays: SWIFT transfers can take 2–4 business days, delaying fund access
• Hidden charges: Banks often bundle FX margins, wire fees, and conversion fees into a single, opaque charge
• Compliance lapses: Delayed eFIRA or missing IGST documentation affects audits and refunds

🚀 How Xflow helps:

• Lock FX rates and know your exact INR receivable
• Track payments end-to-end
• Get instant visibility into fees and FX conversions

6. Create a mitigation plan

Once the risks are documented, build a plan to plug the gaps:

• Align on pricing model and documentation with your CA
• Use fixed markup rates and standard contract templates
• Shift from traditional banks to modern fintech platforms like Xflow for fund transfers
• Set up automated compliance workflows for FIRA, GST, and accounting

A transfer pricing risk assessment is more than a tax compliance exercise—it’s a way to build a reliable and scalable financial structure for your global startup. When done right, it ensures:

• Predictable fund flows from HQ to India
• Accurate documentation for tax authorities
• Strong financial controls for audits and investor confidence

With platforms like Xflow, startups can reduce operational friction, gain FX clarity, and simplify compliance making transfer pricing execution fast, reliable, and audit-ready.