The end of the Brexit transition period presents unique transfer pricing challenges to businesses. These are both specific to the end of the transition period and ongoing as the UK is no longer a member of the European Union.
During the more than four decades in which the UK was a member of the European Union, many groups that are either UK headquartered or have a UK presence became deeply integrated within the EU’s economic framework. The momentous decision to leave the EU has meant wholesale or partial changes to legal incorporation and location for some businesses. In other instances, Brexit has at the very least caused a realignment in the functions of legal entities within groups. The entire value chain may have changed fundamentally, from head office functions through to sales execution. A new transfer pricing policy may therefore be required for the new group structure or value chain.
As the UK has left the customs union, the value of intercompany goods for customs and transfer pricing purposes should be reviewed. A change in the valuation of goods for customs must also be consistent with transfer pricing rules. This, combined with the new anti-profit fragmentation rules, means that all intercompany transactions should be reviewed. Pre-Brexit transfer pricing policies and small and medium enterprise exemptions cannot now be relied upon without further analysis.
Closing the Brexit gap
A review of current transfer pricing policies will close the gap between any changes to group structures or functions and the pricing of intercompany transactions. An appropriate level of contemporaneous documentation will then be needed to clearly demonstrate that up-to-date transfer pricing policies are in place.
Do reach out to us if you have any transfer pricing concerns related to Brexit.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.