Transfer pricing definition

/trænsˈfɜː(r)/ /ˈpraɪsɪŋ/
tag icontax

What does Transfer pricing mean?

Transfer pricing is the amount charged between associated enterprises for the purchase of goods, services or intangible property. This is important for tax purposes as the pricing agreed between associated enterprises will have an impact on the amount of taxable profits each enterprise generates. Broadly speaking, enterprises are associated if one directly or indirectly controls the other, or they are both under common control.
 
Most territories therefore have transfer pricing legislation in place, which usually requires transactions between associated enterprises to be carried out on arm's length terms, reflecting the pricing that is likely to be agreed between independent parties operating in the same circumstances. The enterprises will also be required to maintain appropriate documentary evidence to support the arm's length terms of the relevant transactions.
 
The UK transfer pricing regime requires profits to be adjusted where transactions between associated enterprises have not been carried out at arm's length and a UK tax advantage has been achieved.
 
Small and medium sized enterprises (SMEs) benefit from certain exemptions to the UK transfer pricing regime.

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