As tax authorities around the world tighten regulations and refine their audit strategies, Transfer Pricing has become a top compliance concern for MNEs. Today’s companies face significant key transfer pricing challenges that require strategic adaptation. They must not only ensure that their intercompany transactions are tax-free, but also navigate an increasingly complex global tax landscape.

From the rise of digital economies to stricter compliance requirements, here are the top transfer pricing challenges facing businesses today—and how they can prepare.

1. The Rising Focus on Economic Substance

Key Challenge: Legal ownership alone is no longer enough—profits must align with real economic activities.

Historically, many companies justified profit allocations based on legal ownership of assets. However, tax authorities are now prioritising economic substance—the real functions, risks, and decision-making behind those profits.

For example, if a company holds IP rights in a low-tax jurisdiction, but strategic decisions and R&D are conducted elsewhere, authorities may challenge the IP ownership structure. Countries such as Australia, Germany, and the UK are actively auditing MNEs to ensure profits reflect where real value is created.

How to Prepare:

• Align functions, risks, and assets with reported profits.
• Maintain robust documentation demonstrating the commercial rationale for profit allocation.
• Assess and restructure IP ownership and intercompany transactions to withstand scrutiny.

2. Transfer Pricing in the Digital Economy & Remote Work Era

Key Challenge: Global workforce mobility complicates value creation assessments.

The rise of digital business models and remote work has made it difficult to determine:

Where economic value is created when employees work across multiple jurisdictions.

Whether a company has a Permanent Establishment (PE) based on workforce locations and digital operations.

For example, an MNE headquartered in the US with key employees working remotely in Germany, India, and Singapore may be required to allocate profits differently than before,

potentially triggering new tax obligations in those jurisdictions.

How to Prepare:

• Regularly review workforce locations and assess whether they create new tax liabilities.
• Update TP policies to reflect the realities of remote work and digital services.
• Consider substance-based tax incentives in jurisdictions with supportive regimes for digital businesses.

3. Increased Scrutiny on Intangibles and Royalties

Key Challenge: Authorities demand more evidence on royalty rates and IP-driven profits.

Tax authorities are tightening control over intangibles and royalty payments, requiring businesses to:

Prove how intangibles generate revenue and justify associated royalty rates.

Show that intercompany licensing arrangements are based on economic reality.

For instance, the OECD BEPS Action Plan 8-10 introduced stricter guidelines on IP migration and licensing, leading to major tax disputes. In 2023, the French tax authority challenged a global luxury brand’s intercompany royalty payments, arguing they overstated intangible-related profits in a low-tax jurisdiction.

How to Prepare:

• Conduct benchmark studies to support royalty rates.
• Maintain detailed economic analyses linking IP usage to actual revenue generation.
• Review existing licensing agreements to align with evolving tax laws.

4. Compliance Burden & Increased Reporting Requirements

Key Challenge: MNEs face growing documentation obligations across multiple jurisdictions.

The three-tiered TP documentation framework (Master File, Local File, and Country-by-Country Reporting (CbCR)) is now mandatory in most jurisdictions. In addition, new Pillar Two global minimum tax rules require MNEs to provide additional financial disclosures.

In 2024, countries like Canada, Singapore, and South Korea have strengthened CbCR enforcement, increasing penalties for non-compliance.

How to Prepare:

• Implement automated TP documentation solutions to meet reporting requirements efficiently.
• Stay updated on Pillar Two implementation across different jurisdictions.
• Work with local advisors to address country-specific reporting challenges.

5. Increased Scrutiny on Intra-Group Financing & Financial Transactions

Key Challenge: Intercompany loans, cash pooling, and guarantees must be at arm’s length.

With the rise of BEPS Action 4 and OECD guidance, tax authorities are scrutinising:

Low or zero interest rates on intra-group loans.

Favourable lending terms without commercial justification.

Loans that do not align with the borrowing entity’s creditworthiness.

For example, in a recent case, the UK tax authority (HMRC) challenged a multinational’s intra-group loan, arguing that the interest rate did not reflect an independent lender’s terms.

How to Prepare:

• Conduct credit rating analyses for borrowing entities.
• Benchmark intercompany interest rates against third-party transactions.
• Maintain documentation justifying loan terms, risk assessments, and economic rationale.

6. Managing Compliance in a Multi-Jurisdictional Environment

Key Challenge: Diverse and evolving TP regulations create compliance hurdles.

Countries are adopting different approaches to transfer pricing, making global compliance a challenge:

India and Brazil impose stricter TP regulations with unique methodologies.

The EU continues pushing for greater harmonisation in TP compliance.

How to Prepare:

• Develop a centralised TP framework with room for local adaptations.
• Work with regional experts to navigate jurisdiction-specific TP rules.
• Regularly update compliance strategies to reflect global regulatory changes.

7. Litigation & Disputes are on the Rise

Key Challenge: More TP cases are ending up in court.

Governments are aggressively challenging MNEs on:

Intercompany financing (interest rates, guarantees).

Valuation of intangibles.

Management service fees and cost allocations.

For instance, the Australian Tax Office (ATO) recently won a major TP case against a global software company over profit shifting through intercompany service fees. Courts are increasingly relying on independent economic analyses in TP disputes.

How to Prepare:

• Strengthen TP documentation to ensure defensibility.
• Maintain expert-backed economic analyses of key transactions.
• Have a dispute resolution strategy in place for audits.

How TPI LAB Can Help You Stay Ahead

In today’s rapidly evolving TP landscape, staying ahead requires a combination of expertise, cutting-edge technology, and strategic foresight. As global regulations tighten and tax authorities increase scrutiny, businesses must adapt their TP strategies to remain compliant and minimise risk.

TPI LAB offers a suite of AI-driven, data-backed TP solutions to help businesses reduce risk, ensure compliance, and optimise their TP frameworks.

💡 Let’s discuss how we can transform your TP compliance.

📞 Book a call with our TP experts
📩 Email us for a custom TP compliance assessment
🌍 Visit our website to explore our services and AI-driven TP solutions