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Transfer pricing is a critical aspect of international taxation that often gets overlooked by businesses. However, understanding and managing transfer pricing is becoming increasingly vital, especially in a globalised economy where multinational corporations operate across various countries. Understanding Transfer Pricing... Read more
Transfer pricing is a critical aspect of international taxation that often gets overlooked by businesses. However, understanding and managing transfer pricing is becoming increasingly vital, especially in a globalised economy where multinational corporations operate across various countries.
Transfer pricing refers to the pricing of goods, services, or intellectual property transferred between connected entities such as those within the same multinational group, but usually in different tax jurisdictions, although it can also apply to transactions within the same jurisdiction where different rates apply to each entity. It’s essential to establish prices for these transactions as if they were conducted between unrelated third parties, adhering to the arm’s length principle.
Exemptions from documentation rules are available for SMEs, dormant companies, charities, and life assurance companies based on EU criteria.
The exemption criteria are based on EU recommendation 2003/361/EC as follows:
However, HMRC can still require medium sized entities to produce documentation at their request and therefore it is a recommendation that the documentation is prepared, and the transactions reviewed before the threshold for exemption is exceeded.
Legal Obligation: The UK’s transfer pricing rules are not optional; they are a legal requirement. Failing to comply can lead to penalties and potential legal consequences.
Transfer pricing regulations are not static; they evolve over time and therefore it is imperative for your business to take this seriously. Ensuring compliance through comprehensive documentation not only safeguards your company’s financial health but also fosters a good working relationship with tax authorities.
Where groups do not currently have defined transfer pricing policies, our specialists can assist in understanding intercompany arrangements and preparing transfer pricing documentation. For groups with existing policies, we can review and provide recommendations to help ensure that these reflect any changes in the group and are aligned with the latest transfer pricing guidance. As members of Alliotts Global Alliance, we also have access to a network of local specialists and can coordinate transfer pricing reviews and documentation in multiple jurisdictions.
THE AUTHOR
Partner, Corporate Tax
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