International transfer pricing and global workforces in 2025

HMRC's substantial guidance (GfC7) issued at the back end of last year raised the bar for UK transfer pricing compliance. With ongoing consultations expected to drag an increasing number of businesses into transfer pricing, many will be forced to consider their strategies.

Those that need to do work from a transfer pricing perspective will have to start planning and preparing sooner rather than later, so they can demonstrate a full year of compliance before filing requirements land for the first time. It's never been more important to ensure robust documentation is in place.

Transfer pricing is a buzzword for businesses of all shapes and sizes at present. Enquiries from HMRC are currently scattergun as it searches for relevant information and risk, particularly with respect to medium-sized businesses. However, the introduction of the International Controlled Transactions Schedule (ICTS) is set to change this, with increased transparency a core result of this new measure.  

As Michael Beard, S&W Director in Business Tax and a transfer pricing specialist, says, transfer pricing audits are becoming commonplace, particularly in mainland Europe. “From a headquarter perspective, the aspects of transfer pricing under review can be quite immaterial,” he says. “A main theme of these enquiries is tax authorities identifying if there's a bigger piece of the pie they can be looking into.”

This quickly can become burdensome, so is businesses can showcase accurate information through the ICTS, it is potentially a real positive.  

On the UK front, international workers have always been  an area of interest for HMRC audits, especially with regard to payroll and employment matters. Coupled with an influx of new inspectors tasked with identifying concerns, it means many businesses will need to answer questions, evidence their transfer pricing framework and demonstrate that tracking and compliance for an international workforce are in place.

Rick Shaw, Partner in International Tax and Global Mobility at S&W, explains: “HMRC has been on a huge recruitment drive to increase its capacity to meet with businesses and review their systems and processes, so there are now more inspectors. And, while traditionally, experienced inspectors often had a specialism they would focus on when conducting audits, many new inspectors coming in want to make a name for themselves. They’ll be tasked with geographies or areas, rather than specialisms.”

This means HMRC may probe harder, especially in businesses with an international footprint and workforce. Where business have a UK satellite location or have directors of the UK business who don't actually live in the country, for example, this could pose several compliance questions HMRC will want answered: What role does that person fulfil in the UK? How much time are they spending in the UK? What’s the business doing about it in terms of tracking them and accounting for PAYE (both tax and NI)?

US tax reforms remain a key aspect of international tax planning, with businesses keeping a close eye on the One Big Beautiful Bill Act.

One aspect of this is a possible move from the US to a more territorial tax system, through the introduction of exemptions for dividends received into the US. This is positive and brings the system more in line with the OECD. However, if income isn’t being taxed upon repatriation to the US, the IRS will likely be more interested in where that profit arises in the first place. It then becomes a core transfer pricing question, particularly where there's controversial aspects like intellectual property (IP) involved.

“We can expect the IRS to be taking a far greater interest in the key value-drivers within a business, with a particular focus on IP,” Beard warns. “Businesses will need to ensure they have strong supporting documentation evidencing any positions taken that may not necessarily align with the IRS’s default view that the US is central to profit generation.”

With US tariff reforms dominating headlines over the past few months, lots of businesses are currently in planning and modelling phases: Looking at possible impacts and whether to potentially bypass supply chains to deal with the US issue. That being said, many are also reluctant to press ahead with expensive and time intensive operational changes until the medium-term outlook is clearer.

Beard continues: “For many clients it’s confusing and they’re unsure what action to take. The interaction with customs is quite interesting from a transfer pricing perspective, particularly given the differing valuations often applied. From a customs perspective, a high valuation is beneficial from a tax authority standpoint, but for transfer pricing, a lower valuation results in reporting higher profits in the recipient country. This creates numerous challenges especially when needing to do transfer pricing adjustments on those valuations.”

Another aspect is analysing the impact of tariffs from a transfer pricing perspective, he adds. If the cost of importing rises significantly, the question arises as to who should bear that cost.

“If you're able to pass it on to your end customer, then ultimately you end up in broadly the same position from a transfer pricing perspective. But if you can't pass these additional costs on then there will be a major financial impact on the business. Does that sit with the end distributor or with the central hub?”

Given such challenges, fast-growing businesses need strategies to ensure they can comply, while optimising their outcomes. Beard outlines several key considerations:

Work with advisors to assess the technical position, but ensure a pragmatic response – ultimately, it must be implementable. Defining an acceptable level of risk within policies is also imperative. Tax and finance functions require flexibility. After all, they primarily exist to facilitate commercial operations.

Adapting to changes in tax regimes is also critical. That may mean the US reforms, but also the introduction of corporate taxation in the UAE, for example.  How does the business respond, and how do policies adapt? How do supply chains adapt to tariffs? More than eve, transfer pricing must be flexible.

Finally, for the international workforce, Shaw recommends considering the charging structure you implement and its alignment with the value individuals deliver in the territory. Businesses must understand the impact of their transfer pricing model on local tax and payroll requirements for individuals who may travel to or add value in that other territory. Short term business visitors (SBTVs) are also a major consideration of the transfer pricing framework.

Mergers and acquisitions can also throw up issues, such as how to align newly acquired business policies with the existing approach. Ideally, businesses should look to set the same policies as quickly as possible, but these may not be appropriate depending on the comparability of regions or services.

You’ll need to assess significant people functions (SPFs): Are they being centralised? What are the changes in risk management and decision-making functions of the acquired business? Linking back to value creation is critical.

Transfer pricing policies are often designed pre-integration, so the key is to check whether implementation is proceeding as planned. Where divergence starts to occur, businesses need to be on top of it, ensuring policies are updated accordingly.

If you buy IP to centralise, do you sell or do you license? If choosing not to integrate IP centrally, does the business begin to utilise a co-entrepreneur model? These are key questions for any transfer pricing strategy.

It’s also important to look at business performance post-acquisition, with a view to ascertaining the impact of any IP integration and how this should be reflected from a transfer pricing perspective.

The rise of remote working means that businesses increasingly have economically significant functions across the world.

Where significant people functions are spread globally, businesses may need to consider profit split models that have often been viewed as a last resort. If so, involve key commercial individuals in discussions to check the model matches operational understanding. Any decision on the model adopted needs to address the impact on the employment tax compliance of both business and individuals.

Part of this may involve considering how to defend losses, and risk management functions are key to this. Where do these reside?

For big businesses, advance pricing arrangements (APAs) or mutual agreement procedures (MAPs) can bring certainty and clarity to transfer pricing, but they often aren’t appropriate for medium-sized business due to being too time consuming and costly. The key, instead, is risk assessment and a focus on key transactions and documentation requirements.

Put yourself in the shoes of tax authorities, assess your key areas of exposure, and ensure implementation matches documentation. Doing so should enable the business to face the increasing scrutiny of transfer pricing with confidence.