INTM410520 - Transfer pricing: introduction: what is transfer pricing? : an explanation
Transfer pricing explained
A transfer price is the price charged in a transaction between two parties. The transfer pricing legislation concerns itself with the prices charged in transactions between connected parties as, in such circumstances, the price charged may not necessarily be that which would have been charged if the parties had not been connected. Note that in this context ‘connected’ means that the ‘participation condition’ (see INTM412060) is met.
A transfer pricing risk mainly arises in cross border transactions between two companies who are part of the same group. However, UK transfer pricing legislation also applies to transactions where both parties are within the UK Transfer pricing risks are not limited to company to company transactions; for example a transaction between a company and a controlling individual would be within the ambit of transfer pricing. See INTM482000 for guidance about transfer pricing risk assessment.