Legal and Finance: Transfer Pricing Is Everybody's Problem
The Inland Revenue could be set on a transfer pricing crackdown, accountants Grant Thornton have warned.
The rules, which took effect on company accounts from July 1, 1999, affect how related companies set prices for goods, services, finance and intangible assets between each other. But some firms do not believe they are affected by the rules.
John Hodgson, tax partner at Grant Thornton in Birmingham, said: 'We often hear phrases such as 'we are too small to be affected' or 'transfer pricing is not our problem', but our experience of increased Inland Revenue transfer pricing vigilance directed towards smaller firms and the inclusion of standard transfer pricing questions in investigations, leads us to advise companies to think twice before ignoring the issue.'
According to the corporate tax self assessment regime, the onus is now on the taxpayer to ensure that the company operates an 'arm's length principle' on transfer prices, which means that prices should be equivalent to those that would be charged by independent parties.
And, in order to prove this, companies must keep specific documentation on relevant transactions including the collection of comparable pricing schedules, which can be time consuming and difficult to obtain in certain cases. …