The size of your company can affect the level of transfer pricing documentation you are required to prepare. Understanding your UK requirements will help ensure your documentation aligns with both HMRC and OECD expectations.

Transfer pricing documentation generally takes one of two forms; a full transfer pricing report or a short-form memorandum. Which applies depends on the size of the group, and whether it qualifies as an SME.

SMEs

An exemption from full transfer pricing documentation is available to small or medium sized enterprises (SMEs). This exemption is available where a group has 250 employees or fewer, and either an annual turnover of €50 million or less, or total assets of €43 million or less.

Where a group falls below the SME threshold, it is not required to prepare formal transfer pricing documentation. More information can be found here.

Short-form memorandum, or intercompany transaction review memorandum

Where a group falls into the SME threshold, a short form memorandum can be prepared instead of full transfer pricing documentation. The memorandum would detail the following:

• Setting out the current intercompany transactions between companies within the group

• Recommendations to allow management to select an appropriate methodology for pricing intercompany transactions that appropriately reflects the economic reality of the activity

• A suggested appropriate range for the transfer pricing to be set at

Full transfer pricing report

Where a group is above the SME exemption limits, a full transfer-pricing study must be carried out and a transfer pricing report completed. A full transfer pricing report is normally prepared as follows:

1. Confirm the transaction undertaken within the grou

We prepare a detailed questionnaire which helps us understand the activities within the group and the transactions that take place between them. This is a collaborative process, involving calls to ensure all details are fully understood before completing the report.

2. Preparation of functional analysis and design of transfer pricing policy

A functional analysis review will be undertaken for your review. What this entails has been explained in this article here.

We will prepare the policy in a way that determines the most appropriate methodology to price each transaction. We ensure that all decisions made make commercial sense, and discuss our findings with you to agree the most appropriate transfer pricing policy.

3. Economic analysis and benchmarking

To establish what an arm’s length price for the connected party transaction would be, either third-party transactions made by the UK company need to be identified, or a benchmarking exercise using an external database would be needed.

4. Delivery of the transfer pricing documentation

A final transfer pricing report will be produced for the UK entity, sufficiently thorough to support the group’s transfer pricing policy.

Get in touch

Transfer pricing documentation is a valuable asset for any corporate group, but the type you need will depend on your specific circumstances.

Please complete the form below, and one of our team will be in touch to discuss which type of documentation may be right for you.