Transfer Pricing year-end considerations

2025 has proven to be another dynamic year in transfer pricing, shaped by regulatory changes, economic shifts, and technological advancements and solutions.

To help you address the considerations for the year we leave behind and navigate the constantly evolving landscape, we have prepared an overview of the key transfer pricing matters to keep in mind.

1. Year-end adjustments

Year-end adjustments are relevant for many taxpayers. Taxpayers whose standard transfer pricing policies entail the need to reach a target profitability are in principle used to the process of performing year-end adjustments. The increased scrutiny on transfer pricing results and the ever-increasing focus of tax authorities on the implementation aspects of transfer pricing policies means that taxpayers are more and more required to defend the basis on which these year-end adjustments are calculated. Consequently, taxpayers need to be in control of their data in terms of how transfer prices are set and implemented.

If companies are struggling to make their year-end adjustments correctly or need to make large adjustments at year-end, they should be exploring operational transfer pricing (“OTP”) solutions. OTP refers to the implementation of transfer pricing policies to effectuate or account for them in an organization’s financial statements. It includes gathering and wrangling data to apply the policies, setting transfer prices, and monitoring and calculating adjustments.

For taxpayers who have made acquisitions during the year, it is critical that they understand the applicable transfer pricing policies, identify the needed financial data to apply the policy, and book the appropriate transactions (with the correct related parties and the correct transactions for purposes of VAT and duties). Taxpayers who are able to reflect year-end adjustments on their books for the year would avoid the necessity to perform adjustments after the books are closed and would likewise avoid the secondary adjustment consequences associated with those adjustments.

2. Budgeting for the new year and true-ups

It is quite common to charge for providing intercompany services based on budgeted costs established at the beginning of the year to ensure predictable and consistent transfer pricing. At year-end, performing true-ups to reconcile the difference between budgeted and actual costs is an important task for any in-house transfer pricing specialist or controller. The possibility of performing the true-ups should also be appropriately reflected in the intercompany agreement governing the respective intercompany transactions. To the extent this is not the case, it is still recommended to perform the true-ups (if necessary), to ensure that the service provider is appropriately remunerated in line with the functions performed, risks borne, and assets employed.

Any large cost center deviation that was not properly reflected in the budgeting phase will require special attention (examples include new investments that may (not) require allocation to other entities in the multinational group or new functions performed). Such deviations may require explanations to defend the benefit received (especially for some of the more challenging jurisdictions). Studying these deviations prior to year-end and considering them for the new year is important to mitigate any transfer pricing and tax risks.

3. Dealing with new intercompany transactions

Companies expanding their businesses to new markets, growing organically or through mergers and acquisitions, need to consider the implications of any new cross-border intercompany transactions. The determination of an arm’s length price should follow the relevant principles incorporated in the OECD Transfer Pricing Guidelines, while equally focusing on the implementation aspects of the transfer price applied, its robust documentation and the preparedness for a potential transfer pricing audit.

Furthermore, the preparation of an intercompany agreement prior to the execution of the intercompany transaction is highly recommended. Tax authorities in many jurisdictions expect that, as with transactions between unrelated parties, agreements are entered into prior to the execution of an intercompany transaction and require the submission of the intercompany agreements in conjunction with the submission of the transfer pricing documentation.

4. Review existing intercompany agreements

Prior to year-end, it is always highly recommended to review existing intercompany agreements that govern recurring transactions. Many intercompany agreements have termination clauses where typically the termination date corresponds to the last date of the year. In case of recurring transactions, it needs to be ensured that agreements expiring are renewed according to the terms of the agreements.

In conjunction with this exercise, it is necessary to also review the terms and conditions of the intercompany agreements in order to ensure that the terms and conditions continue to reflect arm’s length terms. Adjustments, especially in terms of the remuneration and/or pricing terms, should also be undertaken to the extent necessary.

5. Changes to the transfer pricing documentation regulations in Denmark

In 2025, the Danish Parliament passed legislation to ease transfer pricing compliance for Danish taxpayers. The new transfer pricing rules will apply for the income year 2025.

With the introduction of new thresholds, certain taxpayers will be exempt from transfer pricing documentation requirements if controlled transactions on an aggregated level are below DKK 5 million and intra-group receivables and debts are below DKK 50 million. However, documentation is always required for controlled transactions involving intangible assets covered by Section 40 of the Danish Depreciation and Amortization Act, as well as for transactions with countries outside the EU/EEA that do not have an information exchange agreement with the Danish tax authorities.

For taxpayers still subject to documentation requirements, the new rules exempt certain controlled transactions, including dividends, capital contributions, minor passive investments, and other insignificant transactions.

At the same time, the group thresholds for preparing limited documentation are increased. The annual total balance sheet threshold rises from DKK 125 million to DKK 195 million, and the turnover threshold increases from DKK 250 million to DKK 391 million. The full-time equivalent (FTE) threshold remains unchanged at 250.

The new rules also remove the Danish tax agency's authority to request auditor statements. Consequently, the Danish tax agency cannot make discretionary assessments or impose penalties for failing to submit an auditor statement.

Finally, the law includes an automatic deadline extension for submitting the transfer pricing documentation (the 60-day deadline) if an extension is granted for the corporate tax return. As a result, there will no longer be a need to apply separately for extensions of both the corporate tax return and the transfer pricing deadlines.

6. Get compliance right

Transfer pricing compliance requirements have been on the rise, as many countries adopt their legislations and other countries introduce compliance legislation for the first time. In more recent years, we have observed certain countries also introducing transfer pricing documentation submission requirements either simultaneously with the corporate tax return or subsequent to the filing of the corporate tax return.

It is hence important to stay informed of the ever changing and new legal compliance requirements in order to be compliant in every jurisdiction and avoid penalties as well as compliance risks that arise in the scope of a transfer pricing audit. Technology solutions, such as KPMG Digital Gateway, which offer live updates of relevant deadlines, can be considered tools in keeping track of the ever-evolving compliance requirements worldwide.

7. New economic realities in trade

U.S. President Trump's April announcement of baseline tariffs for many countries around the world has marked the year we lead behind. Escalating trade wars in the realm of international trade, customs duties, and transfer pricing intersect critically, putting additional pressure on multinationals.

Tariffs may distort transfer pricing models significantly in light of potential changes to operating model and supply chain changes but also due to e.g. compressed profit margins. Companies must, consequently, re-evaluate profitability and tested-party margins, update comparables, benchmarking data and intercompany agreements or even perform more structural changes in their supply chains.

In any case, the close cross-functional alignment remains important for multinational companies in navigating the new economic realities brought in global trade.

8. Consider the transfer pricing implications of introducing AI to the organization

Going forward, AI is expected to become a critical driver of value for companies across nearly every industry. Businesses have started to use AI to automate routine tasks, improve decision-making with data-driven insights, and personalize customer experiences at scale. Advancements in machine learning and cloud computing have made AI tools more accessible, enabling organizations of all sizes to innovate faster and operate more efficiently. As a result, AI has shifted from a niche technology to a core component of competitive strategy. Many companies will also in the new year continue to explore the power AI can have for their organizations and decide to undertake financial investments in AI.

As companies plan and deploy AI across the organization and their operating model, assessing the transfer pricing implications is of great importance. From understanding how and if AI is an important driver of business profit, to where decisions regarding AI are taken, the topics to be considered are many. AI can, for example, create new intangibles which can create questions as to whom should own, fund, and benefit from such intangibles.

Addressing the transfer pricing aspects of AI prior to any conceptualization and deployment of AI throughout the organization is highly recommended.