Finance Transformation
Transfer Pricing for Growing Businesses: When It Becomes Your Problem
1 June 2025
Transfer pricing is one of those topics that feels like it belongs to large multinationals with dedicated tax departments and complex cross-border structures. For most growing businesses with international operations, it is a problem that arrives before they are ready for it, and the cost of getting it wrong is disproportionate to the size of the business.
I spent years working on transfer pricing at KPMG, building frameworks for some of the UK’s largest corporate groups. Across twenty years building international businesses, I have also sat on the other side of the table as a business operator with international entities watching transfer pricing move from an abstract compliance question to a real operational and tax issue. The gap between those two perspectives is where most growing businesses get caught.
What transfer pricing actually is
When two companies in the same group trade with each other, the price they charge for those transactions is the transfer price. A UK parent selling goods to an Irish subsidiary, an Irish entity charging a German operation for management services, a holding company licensing intellectual property to an operating company: all of these are intercompany transactions that involve transfer prices.
Tax authorities care about transfer prices because they affect where profit is recognised. A business that sets transfer prices artificially low between related parties in a high-tax jurisdiction and high in a low-tax jurisdiction shifts profit toward lower tax rates. Tax authorities in most developed countries have rules that require transfer prices to reflect what unconnected parties would have agreed, the arm’s length principle, and they have powers to adjust them if they do not.
When it becomes your problem
Transfer pricing becomes relevant as soon as you have more than one legal entity in more than one tax jurisdiction transacting with each other. That threshold is lower than most business owners realise.
An Irish company that has set up a UK subsidiary and charges it a monthly management fee has a transfer pricing position. An Irish company that sells products to its own French operation has a transfer pricing position. These arrangements may be entirely reasonable and defensible, but they need to be documented and priced correctly. The documentation requirement exists whether or not the business has thought about it.
The risk is not primarily that the price itself is wrong, though that is possible. The larger risk is that the arrangement is not documented at all, and a tax authority conducting a review finds no contemporaneous evidence that the price was set on an arm’s length basis.
What the documentation needs to cover
Transfer pricing documentation does not need to be a hundred-page report. For a smaller group, a clear record of the following is a reasonable starting point: the nature of the transaction, the parties involved, the method used to determine the price, comparables or benchmarks used to support the price, and the commercial rationale for the arrangement.
The method used to set the price matters. The most common methods for straightforward transactions between related parties are the comparable uncontrolled price method, cost plus, and the transactional net margin method. Each is appropriate for different transaction types and each has specific requirements for what constitutes adequate support.
The permanent establishment risk alongside it
Growing businesses with staff or activities in multiple jurisdictions sometimes create permanent establishment positions in those jurisdictions without realising it. A salesperson based in France who negotiates and concludes contracts on behalf of an Irish company may be creating a French permanent establishment for that Irish company, with French corporate tax consequences.
This is a related but distinct issue from transfer pricing. Both need to be considered when a business starts operating across borders in any substantive way. This is also relevant for cross-border compliance for international sellers where VAT obligations layer on top of transfer pricing.
The practical advice
Get a review done early, not after the structure has been operating for three years. The cost of a transfer pricing review by a specialist at the point you establish international operations is modest relative to the cost of a tax authority adjustment three years later covering a period when no documentation existed.
The review does not need to be annual for a straightforward structure. It needs to happen when the structure is established, and it needs to be updated when the structure or the commercial terms change materially. If you need cross-border tax and compliance advisory, that is an area I work in directly.
Maebh Collins is a Chartered Accountant (FCA, ICAEW) and former KPMG tax specialist with direct experience building transfer pricing frameworks for large corporate groups and managing cross-border tax compliance.
Maebh Collins is a Chartered Accountant (FCA, ICAEW), Big 4 trained, with twenty years of experience building and running international businesses. She specialises in finance transformation, ecommerce operations, and digital strategy.