International / Transfer Pricing

You may benefit from specialist transfer pricing advice if your business has transactions between companies in the same international group, such as the sale of goods, provision of services, loans, royalties or the use of intellectual property. Transfer pricing rules broadly require these transactions to be priced as they would be between independent parties. Specialist support can help establish an appropriate methodology, benchmark pricing, prepare supporting documentation and reduce the risk of challenge by tax authorities. Advice can be particularly valuable when entering new markets, restructuring a group or introducing significant new intercompany arrangements.

An international group with significant intercompany transactions should generally have a clear and consistently applied transfer pricing policy. The policy explains how transactions between connected companies are priced and why that approach reflects the arm's-length principle. It can cover areas such as management services, financing, distribution, manufacturing, royalties and intellectual property. A documented policy also helps different group companies apply the same methodology consistently and provides a framework for demonstrating the commercial rationale for the arrangements if they are reviewed by a tax authority.

UK businesses with transactions involving connected parties should consider whether they are within the transfer pricing rules and what documentation they need to support their position. The precise requirements depend on factors including the size and structure of the group, nature and value of the transactions and countries involved. Larger multinational groups can be subject to specific requirements for master files, local files and, where applicable, Country-by-Country Reporting. Even where a business is exempt from formal requirements, maintaining proportionate evidence supporting significant intercompany pricing can be valuable if HMRC subsequently asks how the arrangements were determined.

Transfer pricing documentation should explain the commercial relationships between connected companies, the transactions taking place, the functions performed, assets used and risks assumed by each party, and how the pricing methodology was selected. Depending on the circumstances, it may include agreements, financial information, benchmarking studies, details of intellectual property and analysis of comparable independent transactions or businesses. The objective is not simply to create a compliance document. The documentation should provide a coherent explanation of why the group's actual pricing reflects the economic substance of its activities and the arm's-length principle.

There is no standard fee. The cost depends on the size and complexity of the group, number and type of intercompany transactions, countries involved and level of analysis or documentation required. A review of a relatively straightforward intercompany service arrangement may require considerably less work than developing policies, benchmarking and documentation for a multinational group with financing, manufacturing and valuable intellectual property. When comparing advisers, businesses should therefore consider the scope of work, countries covered, benchmarking requirements and ongoing support rather than comparing headline fees alone.

A master file provides a high-level overview of a multinational group's global business, organisational structure, activities, intellectual property, financing and overall transfer pricing policies. A local file provides more detailed information about the relevant entity and its material transactions with other group companies, including the transfer pricing methodology and supporting analysis. Together, they allow tax authorities to understand both the wider group structure and how specific transactions affecting the local company have been priced. Whether they are required depends on the applicable transfer pricing and documentation rules.

If HMRC or another tax authority challenges your transfer pricing, it may request information and documentation to understand how intercompany prices were established and whether they reflect the arm's-length principle. If the authority concludes that profits have been incorrectly allocated, it can potentially make a transfer pricing adjustment, increasing taxable profits and potentially giving rise to additional tax, interest and penalties. Where more than one country taxes the same profit, mechanisms may be available to seek relief from double taxation. Strong contemporaneous documentation and a clearly applied transfer pricing policy can significantly improve the business's ability to explain and defend its position.

Intellectual property can be particularly important in transfer pricing because valuable patents, software, technology, brands and know-how may generate substantial profits across an international group. It is not enough simply to identify which company legally owns the IP. Transfer pricing analysis also considers which entities perform the functions and assume the risks associated with developing, enhancing, maintaining, protecting and exploiting it, often referred to as DEMPE functions. The resulting analysis can affect royalties, licence fees and the allocation of profits between group companies. IP ownership and transfer pricing should therefore be considered together when structuring international innovation activities.

Transfer pricing should be reviewed regularly and whenever there is a significant change to the business. Trigger events include entering a new country, acquiring or disposing of a company, restructuring operations, transferring intellectual property, introducing new intercompany services or financing, changing supply chains or experiencing substantial changes in profitability. Groups should also consider whether existing policies continue to reflect what actually happens operationally. A transfer pricing policy that was appropriate several years ago may no longer be defensible if the functions, assets, risks or commercial relationships within the group have changed.

Yes. For international businesses undertaking R&D, capital investment or other innovation activity across multiple jurisdictions, a coordinated approach can help identify tax incentives, grants and other funding opportunities available in each country while maintaining oversight at group level. This can reduce duplication, improve consistency and help the group decide where different innovation activities and investments may be supported. It can also be valuable where incentives interact with transfer pricing, IP ownership or international tax arrangements. The adviser should combine local knowledge of individual incentive regimes with the ability to coordinate the overall international strategy.