Revenue gets tough on transfer pricing

According to experts, transfer pricing is seen as the number one tax issue for companies, beating international VAT issues and double taxation concerns.

Four out of five companies now say that transfer pricing – the price at which goods and services are traded between members of multi-national groups – has a major impact on business strategy, with nearly two thirds saying it was a significant influence on tax planning.

KPMG’s Erica Parkes said: ‘With the majority of companies trading principally through their associates in countries outside the UK, transfer pricing represents a potentially onerous responsibility for those signing the company’s corporation tax return.’

Research carried out by the firm showed that one in two companies did not have any documented justification for their transfer pricing policies.

With the introduction of self assessment for companies, UK taxpayers are obliged to assess their transfer prices in accordance with the so-called ‘arm’s length’ principle.

But KPMG found that few companies had adequate resources to ensure compliance under the regime.

‘Despite the significant increase in tax authority enquiries, only 29% of those surveyed have dedicated resources in this area,’ Parkes said.

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