What does transfer pricing actually mean?
It is the pricing of transactions between parties under common control when those parties sit in different countries. The subject covers goods sold between group companies, services one entity performs for another, loans, licences and the use of shared assets. The test applied to those prices is external: what independent enterprises dealing at arm's length would have agreed in comparable circumstances. Nothing about the phrase implies anything improper. Every group with cross-border related-party dealings sets transfer prices, whether deliberately or by default, and the tax result in each country follows from them.
Does transfer pricing apply to a small family company?
Size does not remove a group from the rules. What brings a company into scope is a transaction with a party under common control in another country, not turnover or headcount. A two-company structure with one owner in each country is inside the subject the moment one entity invoices the other, or performs work for it, or lends it money. What does vary with size is the depth of analysis that is proportionate and the disclosure obligations that attach. A small group still needs a reasoned basis for its prices and a record of it; it may not need the volume of benchmarking a large group needs.
Why prepare transfer pricing documentation before anyone asks?
Because the requirement is contemporaneous. Documentation is meant to show the reasoning that was applied when the prices were set, which is something a file assembled after a query cannot demonstrate. Work produced in response to a question still helps answer the question, but it does not satisfy the obligation that ran at the time, and it is read as an explanation offered later rather than as the basis on which the group acted. The practical effect is that timing is part of what documentation means here, not an administrative detail. Preparing it with the accounts, while the facts are still recoverable from the people involved, costs far less than reconstructing it.
Can transfer pricing apply if no money changed hands?
Yes. The rules look at the transaction, not the invoice. If one group company performs work that benefits another, or allows another to use its assets, or funds it without charging, there is a dealing between related parties even though nothing was billed. The absence of a charge is itself a price, and it has to withstand the same test as a stated one. This is a common way a group discovers exposure it did not know it had: head-office functions absorbed centrally, staff seconded informally, or working capital advanced and never documented.
If one country adjusts our prices, does the other refund tax?
Not automatically. An adjustment in one country increases profit there; it does not by itself reduce the profit already taxed in the other. Relief for the resulting double taxation has to be claimed, and the second country is entitled to form its own view of whether the first country's adjustment reflects arm's length dealing. That asymmetry is why the same profit can end up taxed twice. It also changes the order of work when a query arrives, because a position conceded quickly in one country can be difficult to support in the relief claim afterwards. The two responses need to be planned together.
Do we still have obligations if our transfer prices are right?
Usually yes, and this surprises people. The obligation to prepare and keep records, and in many cases to disclose related-party transactions on the return, runs because the transactions exist, not because anything is wrong with the prices. A group can be entirely comfortable with its pricing and still be exposed to a penalty for having no contemporaneous record of how it reached those prices. Treat the record-keeping and the pricing as two separate duties, because they fail separately.
Is "fund transfer pricing" the same thing as transfer pricing?
No — and if you came here to calculate FTP, this is not it. Fund transfer pricing is a bank's internal allocation of funding costs and benefits between its own business units, a treasury and asset-liability management discipline used to measure branch or product profitability. Tax transfer pricing is about prices between legally separate related parties across borders, and about which country taxes the resulting profit. The words overlap; the fields do not. See our transfer pricing work.
Can an accountant in one country file my return in another?
Yes, where they are authorised to represent you with that tax authority and the filing is done electronically. What matters is not where the adviser sits but whether they can lawfully act for you and are competent in both systems — a return prepared with no knowledge of the other country is where the relief gets missed. We file on both sides, from offices in India, the USA, Canada and the UAE. See how we work.
