Brexit: Transfer Pricing and Business Restructurings
The Brexit transition period has ended as of 1 January 2021. During the final moments of 2020 a deal has been negotiated between the EU and the United Kingdom. Companies that conduct business with the UK or have an active business in the UK should have started their preparations.
As part of these preparations, certain business activities or goods may have moved from or to the UK that were not previously there. Such changes can have profound tax and transfer pricing effects that have to be considered.
Business Restructuring For Transfer Pricing Purposes
Moving certain business activities or assets to the UK from abroad (e.g. the Netherlands) or the other way around is likely to be considered a business restructuring for transfer pricing purposes.
The transfer of business activities often means the transfer of certain profit generating activities. Therefore, these activities have an economic value. The arm’s length principle dictates that transactions between related parties have to take place under similar conditions as similar transactions between unrelated parties. If (theoretically) certain profit generating activities are transferred to an unrelated party, a price for those activities (or that business) would be agreed. Similarly, a price has to be agreed between the related parties.
Moving business activities or valuable assets away to another country will almost certainly trigger red flags with your local tax authorities and are incredibly likely to trigger a tax audit. Therefore it is important to carefully and deliberately determine an at arm’s length price for the transferred activities or assets.
If you want to learn more about the transfer pricing impact of business restructurings or how to best prepare for a tax audit in case of a business restructuring, then feel free to reach out to the Crowe Peak tax specialists.