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HMRC internal manual

International Manual

Transfer pricing: Types of transactions: tangible goods

Sale of physical goods

Some transfer pricing enquiries will be concerned with transfers of tangible goods. Tangible goods may be raw materials, part-finished goods or finished goods.

It is relatively simple to find data on comparable uncontrolled prices for raw materials and commodities - for example the price of cocoa or coffee. This data would represent an informed basis for a comparable uncontrolled price. However, it is more difficult to find directly comparable prices for semi-finished or finished goods, especially if these goods are sold incorporating an intangible such as a brand name. However, when reviewing the arm’s length price for the transfer of any goods between connected parties, the product transferred does not have to be identical with a product transferred to or from an independent. It is the functions undertaken and the risks incurred by both parties which tend to govern the price charged.

When looking at the sale of tangible goods, there may be other related transactions to consider. As well as the actual sale of the goods, there may be an element included in the price for the provision of auxiliary or support services; in looking for comparable transactions, or for companies selling similar goods, it will be necessary to consider whether similar services are offered and what effect they might have on comparability. In other cases, the sale of tangible goods may involve the use of valuable intangible property belonging to someone else. The full facts must be ascertained about what is being transferred and the circumstances of the transfer in order to reach any tenable conclusion about the price.