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Practical impact of BEPS on our key market segments


Transfer Pricing (“TP”), the area of international tax concerned with the pricing of intercompany transactions used to be the focus of PLC boardrooms rather than Private Business, but no longer. The OECD’s Base Erosion and Profit Shifting (“BEPS”) project has raised the profile of TP on tax authorities radars for UK inbounds and UK PLCs as well as privately owned and private equity backed business. As a consequence, we have seen a significant increase in the number of TP audits and challenges on Due Dilligence, which can give rise to price chips, TP adjustments, penalties, interest, and reputational risk.

Whilst many privately owned and private equity backed businesses can potentially benefit from the small and medium size companies exemption in the UK. Many overseas territories do not have a de-minimis for transfer pricing documentation, so businesses entering new markets need to give pro-active thought to tax authority attitudes; local territory compliance requirements; and the transfer pricing structure that they are adopting in new territories.

Furthermore, it can no longer be a safe assumption that tax authorities will only use TP documentation for their own benefit. Increased information sharing between tax authorities heightens the risk that a weak TP policy and/or poorly drafted TP documentation will have a knock on impact in all of the territories that you operate in.

Transfer pricing should be on your board’s radar as soon as you have any of the following:

  • International expansion

  • Cross border transactions between related parties (product, services, intellectual property)

  • Online sales platform, with sales outside your country of residence

  • Employees working overseas

  • Potential sale or exit by PE house

In our experience, the classic hallmarks of where TP may need review include:

  • Loss making subsidiaries

  • Old or out of date TP documentation

  • Recurring tax audits

  • Complex spreadsheets driving group transfer pricing model with significant manual intervention

Any business that has concerns with respect to the above should determine an appropriate group TP policy for overseas expansion, ensuring that it is flexible and dynamic enough to deal with future expansion. Where businesses have a pre-existing TP policy, this should be reviewed and consideration given to any modifications that are required as a consequence of business change since the TP policy was determined.

Ultimately the nature of the TP policy and TP documentation will differ for each individual business, but thought should be given to the nature of support for each individual transaction, the extent to which TP documentation is required (either a TP policy file or Master File/Local File) and how the TP policy is implemented.

For more information, please contact Chris or one of the Midlands Transfer Pricing Team

Chris Booker is a Senior Manager in our Transfer Pricing team

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