Transfer pricing advice for connected companies and international groups
If your business has intercompany transactions, such as management charges, goods, services, royalties, intellectual property, loans or financing arrangements, you may need to demonstrate that these transactions are priced on an arm’s length basis.
Transfer pricing is a key tax consideration for businesses that trade with connected companies, subsidiaries, parent companies or other related parties, either in the UK or overseas.
Our transfer pricing specialists help businesses prepare robust transfer pricing policies, benchmarking reports and UK transfer pricing documentation to support their tax position and reduce the risk of HM Revenue and Customs (HMRC) challenge.
UK transfer pricing reports and documentation
Transfer pricing rules are designed to ensure that transactions between connected parties are priced as if they had taken place between independent businesses. This is known as the arm’s length principle.
For many groups, transfer pricing is one of the most important areas of international tax compliance. HMRC expects businesses to keep appropriate records to support their tax return position, and larger groups may be required to maintain OECD-style transfer pricing documentation, including a master file and local file.
A well-prepared transfer pricing report can help your business:
- support the commercial rationale for intercompany pricing
- evidence compliance with UK transfer pricing rules
- prepare for HMRC enquiries or risk reviews
- align UK documentation with overseas transfer pricing requirements
- reduce the risk of tax adjustments, penalties and double taxation
Who needs transfer pricing advice?
Transfer pricing is not only an issue for large multinationals. Some smaller and medium-sized businesses may also need to consider their position, particularly where they are part of a wider international group or have material overseas related-party transactions.
HMRC has also recently consulted on changes to the transfer pricing scope and SME exemption, so this is an area businesses should keep under review.
You may need transfer pricing support if your business:
- is part of a UK or international group
- trades with overseas subsidiaries, parent companies or sister companies
- makes or receives management charges
- transfers goods, services, intellectual property or funding between connected parties
- has cross-border loans, guarantees or financing arrangements
- is expanding internationally
- needs a UK transfer pricing report, local file or benchmarking analysis
- has received questions from HMRC about related-party transactions
Inbound and outbound transfer pricing
For overseas groups operating in the UK, transfer pricing may be relevant where UK entities transact with overseas parents, subsidiaries or connected companies.
For UK groups expanding overseas, transfer pricing should be considered when new overseas entities begin trading with the UK business or wider group.
In both cases, documentation and clear policies can help support the tax position and reduce the risk of challenge.
HMRC transfer pricing enquiries and dispute resolution
If HMRC raises questions about your transfer pricing arrangements, we can help you respond, prepare supporting evidence and work towards a fair resolution. Early advice can make a significant difference in managing the process and reducing risk.
Meet the transfer pricing team
Frequently asked questions
Transfer pricing refers to the pricing of transactions between connected businesses, such as companies within the same group. These transactions may include goods, services, management charges, royalties, loans, intellectual property or other financing arrangements. The key principle is that transactions should be priced as if they had taken place between independent parties.
The arm’s length principle means that connected businesses should price transactions in the same way that independent businesses would in comparable circumstances. This is the foundation of UK transfer pricing rules and the OECD Transfer Pricing Guidelines.
You may need a transfer pricing report if your business has material transactions with connected companies, particularly where those transactions are cross-border. A report can help support the pricing used in your tax return and provide evidence if HMRC asks questions.
Transfer pricing documentation typically explains the group structure, the nature of the intercompany transactions, the functions performed by each party, the assets used, the risks assumed and the method used to determine arm’s length pricing. Larger groups may need OECD-style documentation, including a master file and local file.
A local file is transfer pricing documentation focused on a specific country or entity. For a UK business, it usually explains the UK company’s related-party transactions and includes supporting analysis to show that the pricing is arm’s length.
Transfer pricing benchmarking compares your intercompany pricing with comparable independent transactions or companies. It is used to support the position that your pricing is commercially reasonable and in line with the arm’s length principle.
Yes. HMRC can ask questions about related-party transactions and may challenge transfer pricing if it believes transactions have not been priced on an arm’s length basis. Good documentation can help reduce the risk of challenge and support your position during an enquiry.
Some small and medium-sized enterprises may benefit from transfer pricing exemptions, but the position depends on the size of the business, group structure and nature of the transactions. HMRC has also consulted on changes to the SME exemption, so businesses should take advice rather than assume they are outside the rules.
If your business cannot support its transfer pricing position, HMRC may make tax adjustments, charge interest and potentially apply penalties. Poor documentation can also make enquiries more difficult and time-consuming to resolve.
You should review your transfer pricing policy when your group structure changes, you expand overseas, introduce new intercompany transactions, make acquisitions, change operating models, or experience significant changes in profitability. It is also sensible to review your position regularly to ensure your documentation remains accurate and up to date.
