UK transfer pricing rules require businesses to be compensated based on the relative value of their activities. Groups in the logistics sector often engage in various cross-border transactions, so it’s essential to conduct proper reviews and maintain thorough documentation to support the pricing of these intragroup dealings.

Our experience in the logistics sector

Our logistics services clients are predominantly involved in providing inbound and outbound logistics, as well as comprehensive logistics support services. These activities cover a range of transactions including:

• Head-office operations

• Back-office functions

• Marketing initiatives

• Logistics and distribution services

With clients operating across, and expanding into, different jurisdictions, we are equipped to prepare UK local files and group master files, as required. We can also review existing transfer pricing policies and provide recommendations for improvements.

Choosing the right methodology

Transfer pricing documentation methods vary depending on the type of transaction, and understanding each entity’s role, functional allocation, and risk is critical to selecting the right approach. In the logistics sector, where operations are highly integrated, the residual profit method is most commonly applied, often alongside the Transactional Net Margin Method (TNMM) and the OECD’s approach to low value-added services, depending on the outcome of a functional analysis.

To illustrate how these methods work in practice, we have detailed below an approach for determining an appropriate cost-based mark-up within a group whose principal activity is the provision of logistics services.

The residual profit method for a logistics services provider generally involves the following steps:

• Total profits from third party customers are identified

• The costs attributable to providing the logistics services themselves, such as the Group’s marketing and distribution function, are benchmarked and allocated an appropriate mark-up on cost

• Head-office and group management services are benchmarked under the TNMM and allocated an appropriate, higher mark-up on cost

• The residual profits are apportioned on a per-customer basis across the Group, based on the value added by each relevant group entity, after deducting the marked-up intercompany logistics services

The residual profit method is particularly useful for organisations that have a high degree of integrated operations, which is often the case within the logistics industry. Its primary objective is to ensure that intragroup transactions are conducted at arm’s length, allocating residual profit based on the contribution of each group entity to the overall service delivery.

Get in touch

Logistics companies must understand their transfer pricing responsibilities, particularly when conducting intragroup transactions outside the UK. This is especially important for organisations with cross-border operations in regions like the US, Europe, or Asia. Drawing on our expertise in analysing businesses, benchmarking, and creating comprehensive transfer pricing reports for sector-specific entities, we are well-placed to guide you through your unique requirements.

With growing government focus on transfer pricing, businesses need to stay informed and ready to respond appropriately. To learn more about transfer pricing and how our team can help, please visit our dedicated transfer pricing service page or get in touch using the contact form below.