Brexit had an impact on various aspects of the UK economy and UK entities. One important aspect that was impacted is transfer pricing. Post Brexit, companies in the UK, or those that have trade in the UK, have to take more taxation matters with regard to their intragroup pricing.
Pre-Brexit Transfer Pricing Framework
Before Brexit, cross-border trade in the European Union (EU), whether shipping goods between subsidiaries, paying royalties, or dividends, benefited from reduced taxes. This is due to EU legislation that eliminated or minimized customs duties and withholding taxes.
As a result, companies primarily needed to ensure that their transfer pricing practices complied with corporate tax requirements and had less concern for customs duties, VAT, or other taxes on intra-group payments.
Post‑Brexit Customs and Tax Implications
However, following Brexit, all goods being shipped between the UK and the EU are deemed imports and exports. Therefore needed to be cleared through customs and are subject to customs duties and import VAT.
Adjustments to transfer prices after import, upward or downward, may also affect the declared customs value. When an upward modification creates additional customs duty or VAT, a downward modification may create opportunities to obtain refunds. These modifications must also be documented and reported carefully, as they too have legal obligations.
Without EU tax and customs reliefs, transfer pricing requirements may institute compliance obligations, such as:
Customs Duty and VAT – With transfer pricing affecting goods entering the UK or EU, it can potentially lead to extra payments, refund claims, or even penalties if not managed properly.
Withholding Taxes – Interest, royalties or dividends from or to the UK may now be subject to withholding tax. This depends on the provisions of applicable double tax treaties or domestic tax laws in the UK or EU Member States.
Restructurings – Transfers of shares or assets between a UK and EU group company may be subject to additional tax implications. Setting fair transfer pricing assessments will be critical to avoid unnecessary disputes or double taxation.
Other Controls – With the UK no longer covered by EU tax and customs frameworks, tax and customs authorities now review transfer pricing obligations. Failure to comply properly with the regulations may lead to fines, audits, or double taxation.
Key issues to consider
Brexit created multiple compliance transfer pricing issues. Companies must consider tax obligations in every intra-group transaction. This will require alignment between tax, finance and customs teams to ensure that transfer pricing policies align with transfer pricing documentation as well as import/export records.
Other issues will involve determining where to hold intellectual property, constructing financing, and where key functions of the business should reside; the conclusion will take collaboration between all areas of the business’s functions. Failure to comply with the legal requirements can lead to double taxation and/or penalties.
FAQs
- How did Brexit change transfer pricing rules?
Brexit turned UK–EU trade into imports and exports, so transfer prices now affect customs duty and VAT too.
- Can changing transfer prices later cause tax issues?
Yes, adjusting prices after import can increase or decrease customs duty and import VAT, so companies must manage this carefully.
- Are there new taxes to consider?
Yes, withholding taxes on royalties, dividends, and interest may now apply, so firms must plan payments and restructurings properly.
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