Transfer pricing for US and UK group companies, documented for HMRC and the IRS
Every time your UK and US companies charge each other for services, goods, IP or loans, both HMRC and the IRS can ask whether the price is fair. We set intercompany prices at arm’s length, put the agreements in place and keep documentation that stands up on both sides.
Free and no obligation. You get a written scope and fee before any work starts.
What sets and defends your intercompany price
The steps behind every price that has to satisfy two authorities.
- MethodThe transfer pricing method chosen under the OECD Guidelines and US section 482.
- BenchmarkingComparable independent companies used to support your markup or margin.
- AgreementsWritten intercompany agreements that match how your companies actually operate.
- DocumentationA local file and master file where required, plus US section 6662 documentation.
- Form 5472The US information return for foreign owned companies, included every year.
When intercompany pricing becomes a tax problem
These are the arrangements that usually draw questions from HMRC or the IRS.
You recharge costs to your other company
Head office, staff or software costs are shared between the US and UK companies, often at cost or a round number.
The risk: if the charge cannot be explained, either authority can adjust it and add penalties.
One company sells the other’s products
A UK or US company acts as the local sales arm and keeps whatever is left after the intercompany invoice.
The risk: a margin that swings from year to year is hard to defend as arm’s length.
One company owns the technology or brand
The other company uses the software, platform or brand without a licence agreement or royalty.
The risk: profit may be taxed in the wrong country, then adjusted later with interest.
You have lent money between the companies
The parent has funded the subsidiary through a loan with little or no paperwork.
The risk: interest can be disallowed, and the loan itself can be questioned.
Which transfer pricing method fits your transaction?
Two quick questions. You will see the method usually applied, how the price is normally set and the records each authority expects.
How the method finder works: it covers the five intercompany transactions most common between US and UK group companies. These are management and support services, distribution of goods, licences of software or other IP, intercompany loans and contract research and development. For each, it shows the transfer pricing method usually applied under the OECD Guidelines and the US section 482 regulations, how the price is normally set, and the documentation HMRC and the IRS expect for your group size. For example, a UK subsidiary selling its US parent’s products usually earns a stable, benchmarked operating margin under the resale price or transactional net margin method.
What we do for you
Intercompany pricing that is set, agreed and evidenced for both authorities.
Functional analysis
Interviews and a written analysis of what each company does, which assets it uses and which risks it carries.
Method selection
The most appropriate method for each transaction under the OECD Guidelines and the US section 482 regulations.
Benchmarking study
A search for comparable independent companies to support your markup, margin or royalty rate.
Intercompany agreements
Written agreements for services, distribution, licences and loans that match how your companies actually operate.
UK and US documentation
A local file and master file where required, and section 6662 documentation for penalty protection in the US.
Year end adjustments
True up calculations so actual results land within the arm’s length range before the books close.
What clients say about our transfer pricing work
A management fee the IRS can follow
We had been charging our US subsidiary a flat fee nobody could explain. Taxule rebuilt it as a cost plus charge with benchmarking and a proper services agreement, before our first IRS return.
Contract and margin finally match
On paper our UK company was a low risk distributor, but its team ran the whole European sales effort. Taxule aligned the contract and the margin with what actually happens.
Form 5472 caught in year one
Nobody had told us about Form 5472. Taxule caught it in our first year and documented our intercompany loan at the same time.
How we work with you
Three stages, with both authorities in view from the start.
Understand the group
We map every intercompany flow and speak to the people who run each company, to see where value is really created.
You get: a clear picture of every transaction that needs pricing.
Price and document
We choose the method, run the benchmarking and draft the agreements and documentation for both sides.
You get: signed agreements and documentation ready before your returns are filed.
Maintain each year
We update the analysis annually, make year end adjustments and prepare Form 5472 and any UK records.
You get: pricing that stays at arm’s length as the group changes.
Why one team for both sides of the price
An intercompany price is income for one company and a cost for the other. This is what changes when one team tests both.
The transfer pricing rules behind your position
The rules that decide your intercompany price, explained in plain English.
Both authorities test the same price
HMRC checks the UK company has not been underpaid. The IRS checks the US company has not been underpaid. The price has to satisfy both at once.
TIOPA 2010, Part 4What companies do matters more than paperwork
Profit follows the functions, assets and risks each company actually has. A contract saying the UK company bears no risk is not enough if its people make the key decisions.
OECD Guidelines, Chapter IGroup size changes the UK duty
Small and medium sized groups are exempt from the UK rules in most cases. Groups with revenue of 750 million euros or more must keep a master file and local file.
TIOPA 2010, section 166US penalties turn on documentation
An IRS adjustment can carry a penalty of 20% or 40%. Documentation in place by the return date is the main defence.
IRC section 6662(e)Form 5472 catches new groups
A US company at least 25% foreign owned reports its related party transactions every year. The penalty for each missed form is 25,000 US dollars.
IRC section 6038ADouble tax can be resolved
If one authority adjusts the price and the other does not agree, the mutual agreement procedure in the treaty lets the two authorities settle it.
US and UK treaty, Article 26Your transfer pricing questions
Straight answers to what finance teams ask us first.
Do UK transfer pricing rules apply to small companies?
Small and medium sized enterprises are exempt from the UK rules in most cases, although HMRC can require a medium sized enterprise to apply them. The US rules under section 482 have no equivalent exemption.
What does arm’s length mean?
It means the price independent businesses would agree for the same transaction in the same circumstances. Both HMRC and the IRS apply it to transactions between related companies.
Do we need an intercompany agreement?
Yes. A written agreement sets out what is provided, how it is priced and who carries the risks. Both authorities compare it with how the companies actually behave.
What is Form 5472?
An IRS information return filed by US corporations that are at least 25% foreign owned, and by foreign owned US disregarded entities, reporting transactions with related parties. Each missed form carries a 25,000 US dollar penalty.
What happens if HMRC and the IRS disagree on our pricing?
You can ask for the mutual agreement procedure under the US and UK tax treaty, where the two authorities work to remove the double taxation. An advance pricing agreement can agree the method in advance.
How much does transfer pricing support cost?
It depends on how many transactions and companies are involved. After the free consultation, we agree the scope and fee with you in writing before any work starts.
Set intercompany prices that hold up on both sides.
Tell us how your companies trade with each other. We will map the pricing and documentation you need, sized to your group.
