UK Transfer Pricing like the rest of the world has become a major
issue over the last decade.  Whilst the USA and Australia were first in
implementing the requirement to document a company's Transfer Pricing
procedures this has now become a requirement in the vast number of
countries throughout the world.

Transfer Pricing refers to the pricing of assets, intangibles and services
transferred between two entities within one organisation.  The various tax
authorities throughout the world are concerned that the amounts being
charged between these two organisations are not at the same price as if
one of them had been a third party.  By charging less in one country will
mean that the taxation revenue in that country will be reduced.

No two countries have identical rules for Transfer Pricing but the
application of the arms length principle, based on the Organisation for
Economic Co-operation and Development (OECD) guidelines, means a
certain amount of global harmonisation.

HMRC formed a Transfer Pricing Group and this group includes specialist
inspectors and they are located in various parts of the country and have
received training to improve their knowledge of UK Transfer Pricing issues. 
They are involved in risk assessments, compliance and information.  The
number of enquiries has increased not just for the large multinational
companies but also for smaller organisations.

Transfer Pricing documentation in the UK has been a requirement since
1999, compared to the USA and Australia who go back to 1994.  The
requirement is for a company who sells or purchases a product or service
to or from an overseas associate, company or branch, to provide
documentary evidence of the transactions and the basis on how the price
has been agreed.  It is also a requirement for this to apply to transactions
within the UK.  The documentation should also include a comparison
against third party customers.

When completing a Tax return in the UK, you have to state any
adjustments for Transfer Pricing, so the documentation should be
completed before the signing of the return.