Transfer Pricing in UK Legislation: Essential Insights for Businesses

In today’s globalized economy, multinational enterprises frequently engage in intercompany

transactions across jurisdictions. These transactions, which may include the sale of goods,

provision of services, licensing of intellectual property, and financial arrangements, must adhere to

transfer pricing rules to ensure that profits are allocated fairly and taxed appropriately.

The UK has established robust transfer pricing legislation, governed by Part 4 of the Taxation

(International and Other Provisions) Act 2010 (TIOPA 2010). These rules are designed to prevent

profit shifting and tax avoidance, ensuring compliance with the arm’s length principle—a

cornerstone of transfer pricing laws worldwide.

What is Transfer Pricing?

Transfer pricing refers to the prices charged in transactions between related entities, such as a parent

company and its subsidiary. The challenge is to ensure that these prices reflect the arm's length principle - the standard that requires the terms of intercompany transactions to reflect those between unrelated parties in comparable circumstances.

Understanding the Arm’s Length Principle

The arm’s length principle requires that the terms of intercompany transactions mirror those that

would occur between unrelated parties under similar circumstances. This principle is outlined in

the OECD Transfer Pricing Guidelines, which influence the transfer pricing regulations in many

countries, including the UK.

Key Challenges for Businesses

While the principles of transfer pricing seem straightforward, implementing them can be complex.

Businesses face challenges such as:

• Identifying Comparables: Finding independent transactions comparable to

intercompany dealings can be difficult, especially for unique products or services.

• Selecting Pricing Methods: Choosing the right method—such as the Comparable

Uncontrolled Price (CUP) or Transactional Net Margin Method (TNMM)—requires detailed

analysis.

• Navigating Disputes: Double taxation risks arise from disputes between tax

authorities in different jurisdictions.

• Adapting to Changes: Constant evolution in transfer pricing rules, influenced by

initiatives like the OECD’s BEPS Project, necessitates ongoing compliance efforts.

Ensuring Compliance

To navigate UK transfer pricing legislation, businesses should conduct risk assessments, maintain

robust documentation aligned with OECD and HMRC requirements, and seek expert guidance.

Proactively addressing disputes through mechanisms like Advance Pricing Agreements (APAs)

can also minimize risks.

LEXeFISCAL: Your Partner in Transfer Pricing Compliance

At LEXeFISCAL, we understand the complexities of transfer pricing and the challenges businesses face in maintaining compliance.

If your business is struggling with transfer pricing issues or seeking guidance on compliance, contact us today for tailored, expert advice.

Contact us today:

Email: info@lexefiscal.com

Tel: +44 (0)208 092 2111