Is Your UK SME Multinational Prepared for Transfer Pricing? Here’s Why You Should Act Now

For CEOs and CFOs of UK multinational SMEs without a Transfer Pricing (TP) policy in place, now is the time to consider the implications. As regulatory oversight tightens, particularly with potential changes following the recent Autumn Budget for a Spring 2025 consultation, a robust TP policy is essential.

Understanding Transfer Pricing

Transfer Pricing refers to the rules that determine prices set between related entities within multinational businesses. These rules aim to allocate profits fairly across borders, ensuring that each jurisdiction receives its fair share of tax. For UK SMEs expanding internationally, a TP policy isn’t just a regulatory box-tick. It’s a proactive step to mitigate financial risks and strengthen cross-border tax strategies.

Why Now is the Time to Act

With the Autumn Budget now concluded, speculation suggests that exemption thresholds for medium-sized businesses may be lowered, bringing SMEs into sharper focus. As the UK moves towards tighter transfer pricing regulations, medium-sized SMEs are likely to face increased scrutiny. Failing to address TP policy requirements now could lead to costly consequences.

What Are the Risks?

Operating without a TP policy exposes SMEs to various financial and legal risks, including penalties, missed tax planning opportunities, and compliance issues. Relying solely on the SME exemption isn’t a foolproof approach, especially if your company has:

• Transactions with non-qualifying territories – Jurisdictions without double tax treaties or non-discrimination clauses, such as certain British overseas territories, can put you at greater risk.
• Potential HMRC TP notices – Medium-sized enterprises could receive notices demanding TP documentation.
• Patent Box Claims – If your SME takes advantage of the Patent Box regime, a TP policy ensures the correct allocation of profits.
• Profit Fragmentation Rules – HMRC is actively addressing profit fragmentation schemes.
• Operations in low-threshold jurisdictions – Countries like India or Argentina pose unique risks due to their regulatory environments.

Crypto or Blockchain Transactions

As digital assets grow in popularity, crypto transactions between related entities may attract transfer pricing scrutiny. If your SME issues or transfers crypto assets across borders, it’s crucial to establish fair market value and proper allocation. Inadequate documentation can lead to tax authority challenges due to crypto’s valuations and price fluctuations. Many crypto asset firms are relocating to jurisdictions with stronger regulatory frameworks, especially in British Overseas Territories. However, the UK SME exemption doesn’t apply there, so you still have to follow UK transfer pricing rules.

The Benefits of a Transfer Pricing Policy

Instituting a TP policy offers immediate advantages. Beyond reducing the risk of penalties, a strong policy enhances compliance with UK and international regulations.

Additional benefits include:

• Penalty Protection – A TP policy acts as a safeguard, minimizing the risk of hefty penalties.
• Strategic Tax Planning – A well-thought-out TP policy opens up opportunities for growth-focused tax planning.
• Strengthened Global Compliance – Maintaining compliance across borders builds trust and resilience in your business operations.

Take Action Now

In today’s regulatory climate, implementing a Transfer Pricing policy is a vital step for UK SMEs with cross-border operations. The stakes are only getting higher, so don’t wait until HMRC’s requirements become mandatory. Get ahead of the curve and position your company for strategic growth, compliance, and risk mitigation.

Contact us for assistance:

• Neeraj Nagarkatti neeraj.nagarkatti@gunnercooke.com
• Angelo Chirulli angelo.chirulli@gunnercooke.com