Transfer pricing

Transfer pricing is the pricing of transactions that take place between companies within the same group. It can involve the sale of goods, the provision of services, intra-group loans or the granting of intellectual property rights. Correct transfer pricing is not just a tax issue - it is one of the most complex and risky compliance areas for multinational companies.

What is transfer pricing?

Tax authorities in Sweden and internationally scrutinize intra-group transactions with great care, as mispricing can shift profits to low-tax countries. The consequences of non-compliance can include large tax penalties, interest costs and a lengthy and resource-intensive audit.

Transfer pricing affects virtually all multinational groups and has direct and potentially major consequences for the company's finances and level of risk:

  • Compliance and audit protection: Properly documented transfer pricing protects the company in the event of a tax audit and significantly reduces the risk of costly back taxes and penalties.

  • Tax optimization within the law: A well thought-out transfer pricing policy allows for an efficient allocation of profits and costs within the group, which can reduce the overall tax burden in a legal and sustainable way.

  • Internal governance and profitability measurement: Accurate transfer prices provide a true picture of the real profitability of different business units and markets, supporting better and more informed business decisions.

  • Reduced risk of double taxation: Without proper documentation, the group risks being taxed on the same profit in two countries, which can seriously undermine profitability.

Common challenges with transfer pricing

Transfer pricing is one of the most complex and resource-intensive compliance tasks in the tax area. The most common challenges are:

  • Putting the arm's length principle into practice: All intra-group transactions must be priced as if they were between independent parties - finding reliable open market comparables is often technically difficult and time-consuming.

  • Documentation requirements: The OECD BEPS rules require detailed Master File and Local File documentation. Keeping this documentation up to date and accurate is resource intensive and requires ongoing specialist expertise.

  • Constantly changing regulatory landscape: Tax laws and OECD guidelines are continuously updated, and it is difficult to keep abreast of changes in all jurisdictions where the Group operates.

  • Intellectual property rights: Pricing transactions related to patents, trademarks and know-how is particularly complex, as there are often no comparable market transactions to refer to.

How an interim specialist can ensure your transfer pricing compliance

Transfer pricing requires highly specialized skills that few companies possess internally. An interim specialist can quickly fill that gap and ensure the company's documentation, processes and compliance.

An Interim Tax Manager or Transfer Pricing specialist brings the depth of expertise needed to protect the group:

  • Immediate specialist expertise: You get an expert with in-depth knowledge of OECD guidelines and Swedish tax law who can quickly map your intra-group transactions and identify the risks that require action.

  • Dedicated and objective leadership: The interim manager can take a holistic view of your transfer pricing policy and ensure that it is consistent, well justified and fully documented in case of an audit.

  • Practical documentation management: They produce the required Master File and Local File documentation and ensure that it meets the requirements of all relevant jurisdictions where you operate.

  • Results focus from day one: Interim Search's unique process ensures you have the best candidates on the table within 48 hours, ready to start creating value right away.

Frequently asked questions about transfer pricing

What is the arm's length principle?

The arm's length principle is the basic rule in transfer pricing and means that prices of intra-group transactions should be set as if they were concluded between independent parties in an open market. It is this principle that the Swedish Tax Agency and tax authorities internationally use to assess whether a company's transfer prices are correct and acceptable.

What documentation requirements apply in Sweden?

Swedish companies that are part of a multinational group are required to prepare transfer pricing documentation in accordance with the OECD's BEPS Action 13 standard. This means a Master File that describes the entire group structure and a Local File that specifically describes the Swedish company's transactions. The Swedish Tax Agency can request this documentation during an audit.

What happens if the Swedish Tax Agency questions our transfer pricing?

The tax authorities can adjust the company's taxable income if they find that transfer prices deviate from the arm's length principle. This can lead to significant tax penalties, interest costs and a lengthy audit process. The risk is greatly minimized by thorough, up-to-date and well-reasoned documentation that proactively addresses the most sensitive transactions.

Do transfer pricing rules also apply to purely Swedish groups?

In principle, transfer pricing rules are designed for cross-border transactions. Transactions within a purely Swedish group are instead handled by national rules on community of interest. It is above all when transactions take place between Swedish and foreign companies within the same group that the international rules and documentation requirements become fully relevant.

Do you need help? Contact us for a free discussion on how we can support you.