Transfer pricing - market prices in deals within a group of companies

Transfer pricing is the set of rules for taxing transactions between related companies in the same group: when, for example, a subsidiary sells goods or services to the parent or another company within the holding structure. The key requirement is that prices in such intra-group transactions must be at market level, that is, the same as between independent parties (the arm’s length principle).

Why states need this: by manipulating internal prices, a group could artificially move profit from a high-tax country to a low-tax one — by inflating or understating the cost of internal supplies. Transfer pricing rules prevent this: they require profit to be taxed where it is actually generated, and prices to be justified and at market level.

For international business this is an important area of compliance: companies are obliged to justify the prices of intra-group transactions and keep special documentation (transfer pricing documentation). Breaches lead to additional tax assessments and penalties. When building holding and international structures, we take transfer pricing requirements into account so that the structure is not only efficient but also protected against claims by the tax authorities.