Transfer Pricing Safe Harbor Margin Checker

Check whether your intercompany markup meets the jurisdictional safe harbor before closing the books. Provide billed revenue, the eligible cost base, the required safe-harbor margin, and an optional statutory tax rate to surface actual versus required markup, any revenue deficit or cushion, the implied adjustment needed, and income tax risk.

Total intercompany revenue billed to the related party for the tested period.
Eligible cost pool used in the safe harbor computation; exclude pass-through or non-marked-up expenses.
Jurisdictional markup requirement expressed as a percent of the cost base (for example, 7% in India for KPO services).
Optional — defaults to 25.00%. Use the local statutory rate applied to transfer-pricing adjustments or MAP settlements.

Directional planning aid only. Validate intercompany pricing, safe harbor eligibility, and true-up mechanics with your transfer-pricing advisors before filing.

Examples

  • Scenario 1 – Captive support center running below the safe harbor: $4,680,000.00 revenue, $4,500,000.00 cost base, 7.00% safe harbor, 25.00% tax rate ⇒ Actual markup: 4.00% vs. safe harbor 7.00% (-3.00 pts). Required revenue to hit the safe harbor: $4,815,000.00. Revenue shortfall: $135,000.00 (3.00% additional markup / 2.80% of required revenue). Estimated tax at risk at 25.00%: $33,750.00.
  • Scenario 2 – High-performing center with excess margin: $2,310,000.00 revenue, $2,100,000.00 cost base, 8.00% safe harbor, 22.00% tax rate ⇒ Actual markup: 10.00% vs. safe harbor 8.00% (+2.00 pts). Required revenue to hit the safe harbor: $2,268,000.00. Markup cushion: $42,000.00 (2.00% markup headroom / 1.85% of required revenue). Estimated tax at risk: $0.00.

FAQ

Which costs belong in the safe harbor base?

Include only the costs that the local guidance deems eligible for the safe harbor calculation, such as direct operating expenses and related overhead. Exclude pass-through costs or extraordinary items that should not attract a markup, and double-check whether depreciation or third-party subcontracting is eligible.

How should I use the tax exposure figure?

The tax at risk multiplies the revenue shortfall by the statutory rate you provide. Treat it as an estimate of the additional income tax that could be assessed if the safe harbor is missed and no adjustments are made, before penalties or interest.

Can I use this for multi-year testing?

Yes. Aggregate revenue and costs across the review window, then enter the blended figures. You can also run separate scenarios for each year or quarter to document timing differences and target true-ups precisely.

What if my actual margin is negative?

Negative margins will display a shortfall equal to the loss plus the safe harbor markup. Use the result to size the true-up needed to restore a compliant cost-plus profit level before booking local tax provisions.

How should I interpret the markup cushion percentage?

Markup cushion shows the excess revenue earned above the safe harbor threshold as a percent of the cost base and required revenue. A higher cushion indicates more flexibility for pricing variability or future cost increases without falling below the safe harbor.

Additional Information

  • Actual markup equals (revenue − cost base) ÷ cost base expressed as a percentage.
  • Safe harbor revenue is the cost base multiplied by one plus the safe harbor percent.
  • Additional markup percent shows how much you must lift the cost-plus rate when a shortfall exists.
  • Revenue share metrics translate the dollar shortfall or cushion into a percent of the safe harbor revenue target for quick reporting.
  • Tax exposure applies only the provided statutory rate; penalties and interest are not included.
  • All outputs stay in the same currency as your inputs, making it easy to compare with local trial balance figures.

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