Definition

Transfer pricing (Verrechnungspreise) refers to the pricing of transactions between related companies within a multinational group. These prices are set for the exchange of goods, services or intangible assets between the group’s various entities. Transfer pricing plays a central role in tax optimisation and profit allocation within internationally operating companies and is subject to strict international and national rules.

Why it matters for SMEs and start-ups

Although transfer pricing has traditionally been a topic for large international groups, it is becoming increasingly important for SMEs and start-ups too, particularly when they maintain cross-border business relationships. Getting transfer pricing right helps minimise tax risks and supports compliance with global tax regulations, which can prevent financial penalties and legal problems.

Core processes

Managing transfer pricing involves several key processes:

• Policy development: developing transfer pricing policies that comply with international standards and local regulations.
• Price setting: determining transfer prices using recognised methods such as the comparable uncontrolled price method, the resale price method or the cost plus method.
• Documentation: preparing detailed documentation demonstrating that the transfer prices are appropriate and consistent with the arm’s length principle.
• Reporting: meeting country-specific reporting obligations and regularly reviewing transfer pricing strategies.

Tools and software

To support transfer pricing management, companies use specialised software solutions that help with data analysis, documentation and reporting. These tools enable precise price calculations, efficient data collection and management, and the preparation of compliance reports that meet international standards.

Best practices

To manage transfer pricing effectively, SMEs and start-ups should follow these best practices:

• Regular training: keep your finance team up to date on current developments and changes in transfer pricing rules worldwide.
• Proactive planning: develop a strategic transfer pricing policy that meets both business objectives and regulatory requirements.
• Careful documentation: make sure all transfer pricing decisions are well documented so that you can demonstrate compliance during tax audits.
• Use of advisors: draw on the expertise of transfer pricing advisors to resolve complex questions and ensure compliance.
• Use of technology: implement robust IT solutions designed specifically for transfer pricing to improve accuracy and efficiency.

Conclusion

Transfer pricing is a crucial area for companies operating internationally. It offers opportunities for tax optimisation but also carries risks if the rules are not observed. By following international guidelines and applying specialised management practices, SMEs and start-ups can run their global operations efficiently and in compliance with the rules.