eCommerce Transfer Pricing Consulting

What are the Top Transfer Pricing Challenges in eCommerce

Transfer Pricing and Permanent Establishment

eCommerce businesses scale fast. With scaling comes international expansion and sales into new markets, which, in turn, may create a taxable presence abroad. Website servers, fulfilment centres, or marketplace inventory can trigger permanent establishment risks. How to stay compliant without spending major money on consultants and advice, is a large risk. Document transactions between related entities at arm's length pricing to avoid penalties and double taxation.

As eCommerce businesses expand across borders, they face increasing complexities in managing their value chains. From supply chain disruptions to evolving tax regulations, companies must navigate a range of risks that impact profitability, compliance, and operational efficiency. In particular, how transfer pricing play a critical role in how businesses structure intercompany transactions, allocate profits, and mitigate tax risks.

Below are the transfer pricing risks in eCommerce that companies must proactively manage to maintain compliance, optimise costs, and ensure sustainable growth.

Payment Processing

Tarrifs and Customs Rules

eCommerce retailers must navigate complex customs requirements when shipping internationally. The right transfer pricing setup ensures that correct customs valuations are applied, enabling efficient trade with international customers. Misclassification risks customs delays and unexpected taxes that erode profits and disrupt your supply chain operations.

Intellectual Property (IP) & Trademarks, product specifications, patenting, software IP and Licensing Risks

If a business is successful, it is likely that part of the success comes from some IP you haven't captured, capitalised & created a legal structure to treat it as IP. And some of these IP items (trademarks, domains, digital assets, software, patents, marketing know-how) can significantly impact your taxable presence. Moreover, scattered IP creation & ownership can impact a business’s chance for fundraising, as well as exit opportunities. Additionally, the area is worth exploring, as certain favourable tax regimes are available for patents & innovation.

Payment processing represents a significant cost for global eCommerce. Local entities engaging with local payment processors improve customer experience, but create transfer pricing complexities. Medium and large eCommerce businesses should properly structure intra-group transactions to comply with transfer pricing regulations while optimising the customer payment experience. Creating "substance" in each jurisdiction requires careful planning to balance operational needs with tax efficiency.

What are the key uses of Transfer Pricing in eCommerce?

Transfer pricing is essential for e-commerce businesses to ensure tax compliance across jurisdictions and to allocate profits in line with the value created by goods, services, and intellectual property. Failing to address these challenges properly can result in financial and legal penalties, so eCommerce businesses must carefully structure their transfer pricing approach.

Profit Allocation Between Jurisdictions

In multi-jurisdictional eCommerce businesses, determining how profits are allocated between subsidiaries is crucial. Transfer pricing regulations dictate how income should be split between countries to ensure compliance with tax laws and fair profit distribution.

Regulatory Compliance

If eCommerce companies own valuable IP like technology, trademarks, or patents, they must charge royalties to subsidiaries that use them. Transfer pricing ensures these royalties are set at arm's length to ensure proper tax filings.

Intellectual Property (IP) and Royalty Agreements

Transfer pricing compliance shields eCommerce businesses from tax penalties and disputes with authorities. It ensures your cross-border transactions between related entities reflect market rates, preventing accusations of artificial profit-shifting to tax havens, while maintaining proper documentation to justify your pricing methods.

Legal Clarity

Transfer pricing enables a compliant international structure that reduces legal claims risks from clients/suppliers and supports GDPR alignment by clearly defining where data and value are created and managed.

Which eCommerce companies benefit most from transfer pricing?

eCommerce companies operating in multiple countries often find it difficult to determine the correct transfer prices for physical goods, digital products, and services. iVC Consulting collaborates with startups, scaleups and unicorns to demystify these challenges and provide a clear, organised and compliant route to growth (with fewer big surprises).

Independent Online Retailers

Solo entrepreneurs or small teams with unique branding who need transfer pricing, mainly when expanding internationally or working with overseas manufacturers and regional payment processors.

eCommerce Brand Aggregators

Entities that acquire and consolidate successful eCommerce brands, requiring transfer pricing to manage cross-border subsidiaries and optimise tax efficiency across their portfolio companies.

Organizations managing multiple brands that benefit from transfer pricing to allocate shared resources, manage cross-brand marketing costs, and structure intellectual property ownership.

eCommerce Multi-Brand Enterprises

eCommerce Software Providers

eCommerce solution providers offer logistics and inventory solutions that require transfer pricing for licensing technology across borders and charge for platform usage to international subsidiaries.

Online eCommerce Marketplaces

Multi-vendor platforms that require transfer pricing to manage commissions, technology fees, and marketing services between global entities.

Companies developing and distributing apps that benefit from transfer pricing for digital product distribution and managing IP rights across jurisdictions.

eCommerce Application Distributors

Cross-Border Pricing & Profit Allocation for eCommerce

eCommerce businesses operate across multiple jurisdictions, making transfer pricing compliance essential to avoid tax issues. The CUP (Comparable Uncontrolled Price) and TNMM (Transactional Net Margin Method) can ensure fair pricing between related entities within an e-commerce structure.:

TNMM Method (Transactional Net Margin Method) for eCommerce

The Resale Minus Method works perfectly for eCommerce businesses because it starts with the final customer price and subtracts a standard profit margin. For online retailers who simply buy and resell products without changing them, this method focuses on comparable business functions rather than identical products. It mirrors how digital marketplaces naturally price items and simplifies compliance for companies selling across multiple countries from central warehouses.

• Online distributors who don't modify products

• Marketplace platforms connecting manufacturers with buyers

• Cross-border fulfilment operations

• Businesses with clear distribution functions and margins

CUT Method (Comparable Uncontrolled Transaction)/CUP Method (Comparable Uncontrolled Price) for eCommerce

The CUP method compares related-party transaction prices to independent third parties in similar conditions. In e-commerce, it ensures pricing consistency for licensing, payment processing fees, and services. It works best when identical products are available in the open market, but challenges arise in pricing unique digital services or proprietary products.

• Sellers of standardised products with clear market prices

• Companies selling identical products across different channels

• Digital product retailers with consistent pricing

• Businesses using marketplaces with transparent competitor pricing

• For overseas manufacturers

• Payment processors in their customers' markets

As your eCommerce or service business scales internationally, how you structure your group entities directly impacts your tax position, compliance risk, and operational efficiency. Below, we break down three common intercompany models used in transfer pricing: Independent Trading, Limited Risk Distributor (SalesCo), and Limited Risk Service Provider—and how to choose the right one for your global operations.

Intercompany Models for eCommerce

A full-risk subsidiary that carries out all trading functions independently, e.g. buys inventory, sets local pricing, runs marketing, and owns the customer relationships. The subsidiary acts as a profit centre. Best for established markets with strong local teams and infrastructure. Offers higher profit potential but also greater tax, compliance, and management complexity.

Independent Trading

A low-risk sales hub that sells goods locally but doesn’t own inventory or set pricing. The parent handles strategy, procurement, and marketing. Ideal for growing eCommerce brands expanding into new countries with centralised control. The SalesCo earns a fixed margin while reducing operational exposure.

Limited Risk Distributor (SalesCo)

The subsidiary provides support functions such as payment processing, legal or regulatory in the local market. Doesn’t handle sales, pricing, or hold inventory. Thus, is remunerated with a very small portion of revenue (1-2%). The remaining revenue is with the parent company. Used by eCommerce groups when there is very minimal local presence.

Limited Risk Service Provider

in practice

The subsidiary entity buys goods from the headquarters entity at cost + markup and fully controls pricing, sales, and marketing. It bears all commercial risk and retains 100% of profits.

The SalesCo performs basic sales functions under parent company direction. It uses a resale-minus model, earning a fixed margin (e.g., 30%) to cover local costs, remaining revenue is in the parent company.

in practice

in practice

A lean US entity offering support functions like compliance or payment processing.

eCommerce Transfer Pricing experts

Hiring transfer pricing experts ensures eCommerce businesses comply with global tax laws, reducing audit risks and penalties. Experts help structure intercompany transactions, align pricing with OECD and local regulations, and optimize profit allocation. They conduct benchmarking, manage documentation, and defend pricing models in disputes. With growing digital tax regulations, expert guidance safeguards profitability and compliance in multiple jurisdictions.

40+

350+

Projects delivered in 5 years

Happy clients

Frequently asked questions for ecommerce businesses

What Are eCommerce Transfer Pricing Requirements?

E-commerce businesses must price transactions between related entities at arm’s length to comply with tax regulations. This applies to digital services, physical goods, and IP licensing. Proper documentation, benchmarking, and profit allocation are necessary to prevent tax disputes and ensure compliance.

Why Is Transfer Pricing Important for Online Marketplaces?

Online marketplaces must allocate profits fairly between jurisdictions to avoid tax disputes and comply with transfer pricing regulations. With digital business models, fulfilment networks, and intercompany transactions, proper pricing ensures compliance and prevents profit shifting.

How Do Digital Marketing Costs Impact Transfer Pricing?

Significant online marketing expenses, such as SEO, PPC, and influencer partnerships, must be factored into transfer pricing. Proper cost allocation ensures compliance, accurate profit distribution, and defensible pricing structures for intercompany digital marketing services.

What Is the Impact of Customer Acquisition Costs on Transfer Pricing?

Customer acquisition costs, including paid ads and influencer marketing, must be allocated according to arm’s length principle in transfer pricing. These expenses impact profit margins and intercompany transactions, requiring proper documentation to ensure compliance and fair tax distribution.

How do I determine how much profit is with each subsidiary?

Track profits by implementing separate P&Ls with clear attribution rules. For eCommerce, assign direct costs (COGS, fulfillment) directly and allocate shared services (platform, marketing) using activity-based costing. Key metrics should include contribution margin, ROI on local marketing, and operating profit after service charges.

When should I implement transfer pricing?

Implement transfer pricing documentation as soon as you operate across multiple tax jurisdictions. Don't wait for materiality thresholds – early implementation prevents retroactive compliance issues and establishes defensible methodologies. Build transfer pricing into your expansion strategy before entering new markets.

How do materiality thresholds differ between jurisdictions?

Materiality thresholds vary widely globally. The UK requires documentation for companies with €50M+ turnover, Australia for AUD$50M+ global income, while the US focuses on transaction value. Some countries like Mexico have no minimum threshold. For rapidly expanding eCommerce businesses, it's safer to implement documentation early.

What happens when we don't create transfer pricing documentation?

Without proper documentation, you risk tax audits with income adjustments, penalties - up to 200% in some jurisdictions, interest charges, reputation damage with authorities, accounting inconsistencies, M&A complications, and potential director liability. Even minor cross-border transactions can trigger major compliance issues if undocumented.

Should we focus on process or costs for transfer pricing?

View transfer pricing as business process optimisation, not just compliance cost. Well-structured transfer pricing aligns subsidiary incentives, provides accurate performance metrics, supports market entry decisions, enables efficient cash allocation, potentially reduces tax rates through legitimate planning, and simplifies reporting.

How do you benchmark for local entities in eCommerce?

Benchmark eCommerce entities using digital-specific factors: platform investment and customer acquisition costs. Use industry databases with similar business models, select appropriate profit indicators for your model, and adjust for geographic market differences. Multiple benchmarking methods may be necessary.

How can I track eCommerce intercompany transactions seamlessly?

Manual spreadsheets create compliance risks through error and poor audit trails. We've built a specialist IC tool - TransferPricingTools.com, which offers a purpose-built solution that automates transaction recording, maintains consistent pricing, generates report and invoice data, and integrates with your accounting systems. Their platform provides dynamic dashboards and audit-ready reports ideal for expanding eCommerce operations.

Your crossborder value chain journey

Support calls

We guide you through the challenges regarding crossborder scaling with support calls that deliver.

• Crossborder advice

• Transfer pricing advice

• Actionable follow-ups

• Accountability

Building our value to you over time

Value chain consulting

Within the first three months, our team identifies high-priority workflows you need support on.

• Actionable outcomes

• Your value chain creation

• Value-derived from knowledge

• Focus on scaling

iVC partnership

Of engagements started, 80% of clients make iVC their trusted advisor for global expansion.

• Long-term partnership

• Strategic alignment

• Trusted advisory

• Data focused

Trusted by senior executives

Here's what our clients think of the work we deliver for them. We deliver positive and profitable outcomes for C-Level executives across cross-border expansion and transfer pricing.

The team at iVC Consulting is young but nevertheless very experienced and knowledgeable. They quickly obtained a good understanding of our quite complex global structure and resulting needs in relation to a global transfer pricing policy. They approached the problem as if they were internal employees of Docplanner - in a very pragmatic and efficient way. I was also impressed by their modeling skills. Highly recommend, especially for high-growth tech companies.

Peter Bialo
CFO and Board Member
DocPlanner

Transfer Pricing and Beyond! If you are looking for a quality service and advice that works in practice, iVC Consulting should be your choice. Extensive professional knowledge, knowing its client, practical approach - that's what makes a difference.

Agnė Petkevičiūtė
Director of Tax
Vinted

★★★★★

★★★★★

iVC crossborder value chain packages

Providing you with clear, practical and ongoing advice. Enabling us to manage workflows around your international expansion that delivers both growth and more importantly, profitability.

Medium - two calls per month
Value* £2,425 + VAT
*(based on hourly fees)
Offer £1,250 + VAT​ (48% discount)​

For scaleups that need assistance solving the complex international growth issues.

Pro - weekly calls
Please contact us for an offer.

For large companies which need ongoing support, are pre-IPO or are going through reorganization.

Starter - one call per month
Value* £1,250 + VAT
*(based on hourly fees)
​Offer £750 + VAT​ (40% discount)

For startups and scaleups at the beginning of their international expansion journey.

Get in touch