Transfer pricing
Transfer pricing is the price set when one part of a multinational group sells goods, services or intellectual property to another part of the same group in a different country. Because both sides of the deal are the same company, the price can be set artificially high or low to move taxable profit into a lower-tax country. Tax authorities require these internal prices to be set as if the two parts were unconnected businesses, which is the arm's-length principle. It is the single most contested area of international tax enforcement, because no one can fully prove what an internal price "should" be. HMRC's transfer pricing work alone recovered £3,387m in 2024-25.
ByLoopholeKiln EditorialPublished
Figures current as of·Corrections
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Example: a UK subsidiary pays its overseas parent £500m a year in royalties for a brand name, which strips profit out of the UK and parks it where it is taxed less.
Why it matters to a small business: your prices with suppliers and customers are genuinely arm's-length because you have no in-house party to trade with. You pay full tax on the profit that results. A large group does not face that constraint, and the gap between you is structural, not earned.