Transfer Pricing Audit

A transfer pricing enquiry in the UK now takes an average of 41 months to settle. Most of that time is correspondence: questions, documents, then more questions.

A transfer pricing audit is a tax authority's request to justify the prices your own companies charged each other, and then to test your answers. In the UK, it's called an enquiry, and the mechanics are broadly similar elsewhere.

Most countries don’t publish this data but it’s worth knowing how rare this is. HMRC settled 143 transfer pricing cases throughout the 2024-25 tax year, and the work focused on large businesses. Whilst you’re under $750 million in revenue, you won’t be first in that queue. But someone else usually asks these questions long before a tax authority would, and preparing for them covers you either way.

How an enquiry actually runs

Your tax return is due 4 - 12 months after the accounting period ends. The tax authority then has another 12 months from that date to open an enquiry.

From there, they’ll run it through five stages: a business case, the decision to enquire, an action plan, a six-monthly review, and a resolution review. Using the UK as a guide for how long other countries would spend time on an enquiry, the target is 18 months for most cases and 36 months for the complex ones. That 41-month average I shared above tells you how often targets are hit.

When they ask for your transfer pricing documentation, you get 30 days so whatever you have on the day the letter arrives is what you're defending with, because a month isn't long enough to build it from scratch.

Why does the time cost more than the tax?

For a large group, three and a half years of enquiry is a cost of doing business; somebody in the tax team owns it and just gets on with it.

If you’re not a large multinational, there’s usually no tax team. There's you, your accountants who don’t get transfer pricing, and whichever adviser you can convince to take this on. Everything will route through you though.

That's the cost careful planning can avoid. It’s not just the risk of paying fines and taxes you hadn’t planned for, but the years of being the person who has to go and find things.

Who usually asks first

Long before a tax authority reviews your intercompany agreements, a buyer or investor will.

We asked our tax team what makes a buyer lower their offer: a management fee with no pricing rationale behind it, a loan balance with no agreement, IP owned in one country and built by a team in another, charges with no arm's length basis or benchmarking, or licensing arrangements nobody can explain.

Each one becomes the buyer's problem the day the deal closes, so depending on the type of buyer you’ll need to allocate time to gathering the right paperwork and context.

What you'd actually be asked for

Unsurprisingly, a transfer pricing audit won’t ask for a 60-page PDF. Instead it wants to check alignment between:

Agreements. Every internal cross-border charge needs a supporting document explaining what's being charged and why. And it should be contemporaneous.

The reasoning. A written explanation of how each price was set (still no need for sixty pages of corporate guff)

Books that match. That jurisdiction’s books aligning with each agreement’s key criteria (mark-ups, interest rates, etc.)

The most common problem isn't a missing document, but a document describing a company that no longer exists. If the above lines up though, an enquiry is a walk in the park.

If they don't line up, the fees you rack up will probably help a tax adviser finally justify that underground swimming pool.

How Caribou keeps you in check

We set the price, draft the agreements, and check the entries at each year-end, so all three stay in step.

So, when someone asks, whether that's a tax authority, an auditor or a buyer, the answer already exists, and nobody has to build it in 30 days.

If you'd struggle to produce all three today, book a consultation.