Transfer Pricing for Small Teams: The Rules Don’t Care That You’re Lean

The audit was not about size, it was about misplaced profit

A startup has a product team in one country, a sales lead in another, and founders who travel. The structure grows organically. A holding company holds equity. A services entity invoices for “management support.” An IP company was added because someone said it was standard.

Revenue rises, and so does attention.

Then a tax authority asks questions that sound like they were written for a multinational, because they were: why is so much profit sitting in the entity with no people? Why are service fees so large? Why does the IP company receive royalties when product development happens elsewhere?

This is transfer pricing risk, and it is not reserved for big companies.

The OECD Transfer Pricing Guidelines are explicit about what they are: a framework for applying the arm’s length principle as the international consensus for pricing cross-border transactions between associated enterprises.

And for US-facing businesses, the Internal Revenue Service is equally clear that penalty protection can depend on satisfying documentation requirements, and it has published transfer pricing documentation best practices FAQs updated December 2025.

Small teams can be lean and still need a method. The goal is not perfection, it is defensibility.

MARKET & CAPITAL REALITY CHECK

Documentation thresholds vary, but the logic stays the same

Three global realities shape how small teams should approach transfer pricing.

Reality 1: Arm’s length analysis is built on functions, assets, and risks

The OECD framework requires understanding what each related party actually does, what it uses, and what it bears. That is why “we are small” is not a full answer. The audit question is: who created value?

Reality 2: Many jurisdictions have documentation concepts even when formal requirements differ

In the EU, the Joint Transfer Pricing Forum materials discuss the master file and local file concept as a common documentation architecture, even as member states implement differently.

In Australia, the Australian Taxation Office has developed simplified transfer pricing record-keeping options for eligible businesses, explicitly to minimise record keeping while still meeting expectations, and it provides guidance on simplified options.

In the UK, HM Revenue & Customs provides an SME exemption framework from transfer pricing rules for many transactions under TIOPA, which is useful context for founders, but it still leaves the arm’s length concept as the anchor when rules apply.

Reality 3: Services, IP, and management fees are the friction zones

Small teams most often get challenged on:

• intra-group services and management fees
• IP ownership and royalty flows
• cost sharing and developer location
• financing and treasury arrangements

These are the same categories that create “misplaced profit” optics.

THE PLAYBOOK

The TP-lite method that fits small teams

Who this is for: startups and scale-ups with cross-border teams, holding structures, or related-party charges.

What must be true: you can keep contracts and invoice trails consistent, and you can tell a coherent story about value creation.

Step 1: Do the functional analysis in plain English

Write one page per entity:

• What functions does it perform?
• What assets does it use or own?
• What risks does it control and bear?
• Who are the decision-makers and where do decisions happen?

This aligns directly to how the OECD expects controlled transactions to be assessed under the arm’s length principle.

i-Invest DiagnosticOS

From diagnostic to decision-ready in minutes:
Answer a structured assessment, receive your wealth stage and risk signals, then follow a clear, personalized pathway to education, advisory, or diligence.

Get Your Wealth Stage - FREE

Step 2: Choose a simple method you can sustain

You do not need to start with the most complex method. You need something consistent with your facts.

Examples small teams can often operationalize:

• cost-plus for routine services
• commission style returns for limited-risk sales support
• royalty rates tied to demonstrable IP functions, where real IP management exists

The key is that the method matches the functional story.

Step 3: Put intercompany agreements in place before invoices go out

Agreements should match reality and specify:

• scope of services or rights
• pricing method and cadence
• who approves changes
• what evidence will be retained

Step 4: Maintain a clean invoice trail and approval workflow

Keep:

• monthly or quarterly invoices
• timesheets or activity logs where relevant
• approval emails or minutes
• proof of payment and ledger mapping

This is the difference between a story and a file.

Step 5: Use a penalty-aware posture where relevant

In the US context, the IRS notes that avoiding the net adjustment penalty can depend on satisfying documentation requirements. Founders do not need to memorise penalty code, but they should treat documentation as a real risk control.

Four common small-team scenarios, and what to document

1. Dev team in Country A, sales in Country BDocument: services agreement, cost base, markup rationale, sales role delineation.
2. Shared founders across entitiesDocument: where decisions happen, who approves major contracts, signatory matrix.
3. Centralised treasury or cash poolingDocument: loan agreements, interest method, treasury function evidence.
4. IP holding entity receiving royaltiesDocument: what IP functions occur there, who manages IP decisions, why royalties are justified.

AUDIT TRIGGERS SMALL TEAMS CAN SPOT EARLY

When the optics invite questions

Common triggers:

• recurring losses in a high-substance entity while profits sit in a low-substance entity
• high margins in an entity with no people and no decision-making evidence
• large management fees with vague descriptions and thin activity support
• IP royalties with no visible IP governance or real IP functions
• inconsistent contracts and invoices across years

The fix is rarely “change everything.” It is usually “document what is true and align pricing to that truth.”

ACCESS & NEXT MOVES

Make transfer pricing a quarterly habit

Expert types to involve: practical TP specialist, startup CFO, and where needed, local counsel for documentation expectations.

Implementation sequence:

1. Run the functional analysis workshop for every entity.
2. Choose methods and draft agreements.
3. Build the cost allocation sheet and invoice cadence.
4. Create a quarterly review checklist and keep the file current.
5. Refresh annually and after major business changes.

“You do not need a big-company report. You need a file that matches reality.”

Key datapoints box:

• OECD Transfer Pricing Guidelines provide the international consensus framework for applying the arm’s length principle to related-party transactions.
• IRS transfer pricing documentation best practices FAQs updated December 2025 discuss penalty avoidance tied to satisfying documentation requirements.
• UK HMRC describes an SME exemption from transfer pricing rules for many transactions under TIOPA provisions.
• Australia ATO provides simplified transfer pricing record-keeping options for eligible businesses to minimise record keeping.
• EU JTPF materials discuss master file and local file documentation concepts used widely in practice across the EU.

SOURCES & DISCLOSURE

Key sources used: OECD Transfer Pricing Guidelines (2022) and OECD transfer pricing topic page, IRS transfer pricing documentation best practices FAQs (Dec 2025), HMRC SME exemption manual page, ATO simplified record-keeping guidance, EU JTPF documentation papers on master file and local file concepts. (oecd.org)

Disclosure: Informational only, not legal, tax, or investment advice.