One of the key tools connected to profit shifting and tax compliance in general is Transfer pricing. It’s about setting fair prices when companies within the same group trade with each other across borders.
What Is Transfer Pricing?
Transfer pricing is the method used to price transactions between related companies in different countries. These can include the sale of goods, shared services, loans, or intellectual property. The goal is to ensure these prices reflect fair market value just like if two unrelated companies were doing business.
Why It’s Important ?
Stay Compliant
Following international pricing guidelines helps avoid fines, audits, and double taxation.
Improve Efficiency
A good pricing strategy aligns your operations and controls costs across borders.
Manage Risk
Strong documentation and pricing policies reduce the chance of disputes with tax authorities.
Key Principles of Transfer Pricing
Arm’s Length Principle
Prices must be set as if the two companies were independent businesses.
Clear Documentation
Keep records that explain how prices were decided and why they’re fair.
Comparability Analysis
Compare your internal pricing with similar transactions between unrelated companies.
Advance Pricing Agreements (APAs)
In some countries, you can agree in advance with tax authorities on how your transfer pricing should work giving you more certainty.
Common Transfer Pricing Methods
The method you choose depends on the nature of the transaction and your business model. Here are some common approaches:
Comparable Uncontrolled Price (CUP) Method
Compares your internal price to what others are paying in the open market.
Resale Price Method
Works backwards from the final resale price, subtracting a fair margin.
Cost-Plus Method
Adds a profit margin on top of production or service costs.
Transfer Pricing: Key Global Challenges
Managing transfer pricing goes beyond setting internal prices—it’s about aligning global business practices with ever-changing local tax requirements. Here are some of the key challenges multinational companies often encounter
Evolving Tax Rules
Tax laws are frequently updated and differ widely between jurisdictions. Staying compliant across borders requires constant monitoring and expert interpretation.
Cross-Border Data Complexity
Reliable and consistent data is critical. But accessing, standardizing, and verifying data from multiple subsidiaries can be both technically and operationally challenging.
Increased Scrutiny and Transparency Demands
Tax authorities worldwide are demanding greater transparency. Initiatives like BEPS (Base Erosion and Profit Shifting) have raised the bar for documentation and disclosure.
Resource Constraints
Many companies struggle with limited in-house expertise or bandwidth to manage transfer pricing compliance efficiently especially when operating across multiple countries
Risk of Audits and Adjustments
Even with strong internal policies, subjective interpretations by tax authorities may lead to audits, pricing adjustments, or disputes especially in high-risk or high-value transactions.
Alignment Between Tax and Business Strategy
Misalignment between commercial operations and transfer pricing policies can raise red flags and impact both compliance and profitability.
How We Can Help
Managing global tax and transfer pricing doesn’t have to be a burden. We help simplify the process so you can focus on growing your business—while staying fully compliant.
What We Offer
Transfer Pricing Strategy
Practical, fair, and compliant pricing models tailored to your business.
Documentation & Reporting
Clear and well-structured documentation that meets both local and international standards.
Global Tax Compliance
We stay on top of changing rules so you don’t have to.
Audit & Dispute Support
Strong backup and expert guidance if tax authorities raise questions.
Benchmarking & Analysis
We use real market data to justify your pricing and reduce risk.
Let’s Work Together Whether you’re expanding into new markets or fine-tuning your global tax approach, we’re here to help.