Transfer pricing is…

When we talk about transfer pricing, we’re definitely thinking about transferring funds. And probably abroad. Most likely to a tax haven.

If this was your first association upon seeing the title, make sure to read this article to the end. We’ll demystify transfer pricing, show you what it really is, and explain why it’s worth paying attention to.

So, what is transfer pricing? Transfer pricing is…

A dynamically developing area of tax law

Transfer pricing is a branch of tax law primarily (but not exclusively) concerned with corporate groups and the intragroup transactions they carry out. The importance of this area will continue to grow in the future, thanks to global trends in business consolidation. Did you know that more than 80% of global trade occurs between associated enterprises?

The defenders of the (free) market

Working within a corporate group is somewhat like working within a family, but that doesn’t mean the terms of cooperation between the companies can be set arbitrarily. Think of the largest multinational groups, whose value exceeds that of some national economies. What would happen if they were free to set prices in internal transactions however they wished? How would this affect the allocation of taxable profits between countries? How would it influence the competitiveness of local businesses in a given country?

Transfer pricing rules ensure that both group entities and independent entities are treated equally. It’s a matter of fair play. Even the largest groups must constantly ensure that their operating conditions do not differ from those of ordinary market players. After all, you can’t set the price for goods sold to another company within the group at 10,000 PLN per unit, while everyone else is selling the same product for 200 PLN. Similarly, you can’t lend money to a company at an interest rate of 0% when others set it at 5%.

As transfer pricing advisors, we ensure that groups operate according to the “arm’s length principle” – meaning they set prices on terms that unrelated entities would adopt in comparable circumstances.

It’s like flying a helicopter and looking at the big picture

We observe the activities of large corporate groups on a daily basis, both international and domestic. Before a shipment from a transportation company reaches you, before you fill up your car, buy medicine, or car parts, these products and services have often already travelled part of their ‘journey’ with the help of other group members. One entity had to produce them, another took care of advertising and marketing, maybe someone else transported or supported IT systems. The goods or services reached you, and the group made a profit – but how should that profit now be divided within the group?

As transfer pricing advisors, we look at the entire value chain within the group. We assess the contribution of individual companies to the group’s overall success and how each company should be compensated. This is an extremely interesting issue, especially when you consider that each of these companies might be located in a different country. By assigning specific profits – and sometimes losses (!) – to a given company, we determine how much tax will be paid in a given jurisdiction. And remember, countries also compete with each other on tax matters because taxes fund their budgets. The stakes are high, which is why “transfer pricing” is a hot topic at both the EU and OECD levels.

It’s about understanding how large corporations operate

Have you ever wondered how large groups conduct their business? From the outside, it looks uniform – after all, we buy products or services from one brand. But in reality, it’s necessary to involve many entities within the group, performing different functions – such as manufactures, distributors or marketers – to deliver that product or service to us.

Transfer pricing allows us to understand what doing business looks like up close. What kind of profit should be earned from transporting goods between warehouses? How should a company operating a call centre for the group function? How should royalties be calculated for the use of a trademark by other companies?

 In our work as transfer pricing specialists, we closely cooperate with representatives of well-known global and local brands.

It’s an invitation to join an international community of specialists

Transfer pricing is a global issue, although regulations often differ significantly between countries. That’s why we talk daily with transfer pricing specialists from other countries, exchanging experiences and best practices, as many issues and challenges are common, regardless of geography.

A melting pot of experience, knowledge, and skills

Transfer pricing is an area where business and taxes meet, but it’s also intertwined with many other fields. That’s why our team includes professionals with backgrounds in economics, accounting, law, taxation, as well as statistics and philology. Transfer pricing is simply an interdisciplinary field, drawing from the best of all disciplines.

In the daily work of a transfer pricing specialist, there are many different tasks, but everything starts with one key question: who is subject to transfer pricing regulations?

If you think it’s only about large corporations, you’re in for a big surprise. Transfer pricing can also apply to smaller groups operating in just one country, or even to groups with only a single associated entity. In some cases, it can even apply to transactions with completely unrelated entities, or transactions carried out by individuals.

So, transfer pricing can also apply to you. But why? Under what conditions? And what does it entail in practice? For now, we’ll leave you with these questions, but we promise to answer them in upcoming posts in our Mr TAX Academy series.

We hope we’ve piqued your interest in transfer pricing? If so, follow our upcoming posts, as this is just the first of four in our series, where we will reveal the real nature of transfer pricing. We’ll explain when you might qualify as a related party, what obligations arise, and what challenges are faced by global corporations and expanding businesses – whether operating  in Poland or abroad. Stay with us, as next week we’ll be back with another post 😊