Transfer pricing is often assumed to be a concern for large multinationals. It reaches a great deal further than that. If your company transacts with a related party — a parent, a sister company, an entity under common control, in many cases a shareholder — the pricing of those transactions is open to review.
Who it reaches
The test is the relationship and the transaction, not your size. A local subsidiary buying goods from its foreign parent, paying a management fee, receiving a loan from a shareholder, or licensing a brand from a group company is engaged in controlled transactions.
Documentation obligations and reporting thresholds are set by regulation and are revised from time to time, so confirm the current position for your year rather than relying on what applied previously. What does not change is the underlying principle: the price should be the one unrelated parties would have agreed.
Intra-group services draw the first questions
In our experience the first challenge is rarely to the price of goods. It is to service charges and management fees, because they are the hardest to evidence and the easiest to set arbitrarily.
Expect to be asked three things. Was a service actually provided? Did the recipient obtain a real benefit from it? Is the charge calculated on a defensible basis rather than as a share of group overhead? A management fee expressed as a round percentage of turnover, with no description of what was delivered, is the classic finding.
Keep the evidence as it happens: what was provided, by whom, with what time or cost behind it.
Prepare it while you remember
Documentation assembled two years later, from people who have since left, is expensive and weak. Prepare the analysis for the year in which the transaction occurs, while the commercial logic is still fresh and the people who set the terms can still explain them.