Transfer pricing
Definition
The price set for goods, services or funds passed between related companies, which tax rules expect to match what independent parties would agree.
Why does it matter in a group?
Transfer pricing is a tax subject that touches consolidation. Prices between group companies are eliminated in the group accounts, so they do not change group profit. They do change how much profit each company, and each country, reports, and tax authorities expect the prices to match what independent parties would agree. Keep a record of how each price between companies was set, for example for a recharge or a service fee.
A small example
Palmridge pays Zenvara AED 400,000 for services that independent providers would charge AED 360,000 for. The excess of AED 40,000 is GBP 8,100 at 0.2025. A tax authority may disallow that excess as a cost of Palmridge, even though the group accounts show no effect.