In the globalised economy, intra-group interactions have become increasingly complex. These range from the physical trading of goods between group entities, inter-company service provision, inter-company financing and the exploitation of intellectual property by trading subsidiaries. The transfer of value must be priced to ensure that each entity recognises the functions performed, assets used and risks borne to therefore report the correct revenue and cost within the appropriate territories.
Over recent years, transfer pricing documentation requirements have become increasingly onerous. Although the OECD has provided a common framework for its members, each member retains its own laws, interpretation and transfer pricing document requirements.
In the UK, transfer pricing documentation should include a functional analysis of the group and identify the various levels of risk present in each territory. The price used in intra-group transactions must reflect the “arm’s length” price; that is, the price that would have been paid if the transaction had taken place between independent third parties.
How can we help?
Analysis and review: We will analyse and review the functions and interactions within your group, to ensure that the appropriate transfer pricing is in place.
Benchmarking: Using industry leading tools, we are able to price and substantiate the transfer pricing applied by using benchmarking of comparable service providers. This substantiation is recognised by tax authorities globally.
Documentation: We have experience in preparing UK transfer pricing documentation and, as part of the Nexia network, we have local experts around the world to fulfil global transfer pricing documentation requirements.
Dispute resolution: Transfer pricing enquiries are more prevalent than ever before in light of increasingly complex global transfer pricing requirements, the COVID pandemic, and challenges around the digital economy. HMRC may challenge transfer pricing as part of a broader corporation tax enquiry, a diverted profits tax enquiry or as part of the profit diversion compliance facility. We can assist and advise on a fair and efficient resolution to any transfer pricing enquiries.
Frequently asked questions
What are the UK transfer pricing thresholds?
Small and medium companies may be exempt from transfer pricing requirements in the UK if they fall below the minimum threshold.
There is an exemption that may apply when a group falls beneath specific financial thresholds and there is not a significant loss of tax to HMRC. If the exemption applies, the UK company is not required to prepare and evidence transfer pricing documentation on intra-group transactions. This limit is, broadly, applied by considering all group companies and aggregating the figures as appropriate. In order to fall below the threshold for transfer pricing purposes, the group must have fewer than 250 employees and either:
Annual turnover less than €50m, or
Balance sheet assets totalling less than €43m.
It is important to note that the group calculation is relatively complex, and advice should always be sought when seeking to rely on this exemption.
Furthermore, many territories do not have a similar threshold, and therefore transfer pricing may still be applicable if your UK entity is doing business with another group entity in a different jurisdiction.
Find out more about our International Tax Services here.