For SMEs operating across borders, transfer pricing is an increasingly important issue. It governs how goods, services and intellectual property are priced when transferred between group companies in different countries and mistakes can be costly.
Understanding the rules
Tax authorities expect intercompany transactions to be priced at “arm’s length” – the rate that would apply if the businesses were independent.
To comply, companies use methods such as the cost-plus, resale price or profit split approaches, with rules varying across jurisdictions.
In the UK, HMRC is stepping up scrutiny and SMEs are now firmly in focus. Transactions that don’t reflect fair market value can result in tax adjustments, penalties or even reputational harm.
Why SMEs face challenges
Unlike multinationals, smaller businesses rarely have in-house transfer pricing expertise.
This makes it harder to document policies, navigate fluctuating exchange rates and adapt to different international tax frameworks.
Reducing the risk
SMEs can protect themselves by:
- Benchmarking intercompany prices against market data
- Keeping clear documentation of how pricing decisions are made
- Reviewing policies regularly as supply chains and markets evolve
- Seeking expert advice to ensure compliance with both UK and overseas standards
Looking ahead
Global expansion creates exciting opportunities, but also greater compliance responsibilities. By addressing transfer pricing early and proactively, SMEs can reduce their tax risks and focus on growth.
If you’d like expert guidance on navigating transfer pricing, our advisers are here to help.