Transfer pricing questions for companies trading overseas

Tuesday, November 01, 2011 | Posted by: Grant Thornton
Categories: Brazil, China , Russia, Korea, India, South Africa, Interviews | Tags: HMRC, OECD, patent box, transfer pricing rules, transfer pricing, double taxation, business risks, taxable profits, R&D tax credits, international tax, tax jurisdictions, tax treaties, arm’s length prices

Operating in international waters can be complex but with clear planning a lot can be addressed before you take the big step. Even after you have begun trading overseas, it makes sense to talk about your tax structure sooner rather than later.

Watch: This four-minute video where Wendy Nicholls, head of Transfer Pricing at Grant Thornton UK, talks about which companies need to be aware of transfer pricing and what happens when it goes wrong. The issues are relevant to all sectors, although this interview focuses on manufacturing. The clip is part of a 30-minute programme called ‘Reviving UK Manufacturing’ (episode seven), which is available to view via www.thebusinesschannel.tv.

Who does transfer pricing affect?
Any company that is thinking about, or has moved into a new market needs to consider transfer pricing. More often than not, the main focus is on making an impact in the marketplace and winning new customers. Tax is a business cost and unfortunately the effects of tax sometimes come as an afterthought to the commercial running of a business. Transfer pricing is relevant to private companies as well as the largest multinationals.

Should UK companies trading internationally be concerned about international tax and transfer pricing?
Without a doubt, transfer pricing planning is a must but there is no need to be concerned about it. Most countries now have transfer pricing guidelines and each company needs to adhere to those rules that are relevant to the countries in which they have operations.

What are the implications of not considering transfer pricing?
By neglecting international tax planning you may be opening your company up to double taxation, whereby two jurisdictions claim they are owed tax on the group’s profits. By organising your tax structure clearly from the outset you can avoid issues and disputes, additional tax and interest, as well as professional fees on top to rectify the problem. 

Penalties can be imposed for non-compliance, even for companies with losses – so there could be serious financial implications if a company does not take its transfer pricing obligations seriously.

Help and advice
Our Transfer Pricing team advises clients with operations overseas on how to optimise the group tax position by planning its business affairs in the best way. Our tax specialists can also advise on other tax incentives, eg R&D tax credits and patent box incentives. Do get in contact if you have any concerns or would like to discuss how you can make the best use of these provisions.

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