Introduction
Transfer pricing problems can quietly drain a business’s resources and create serious compliance risks—especially for startups and growing companies operating across borders. When your Indian subsidiary invoices your global HQ or vice versa, every transaction needs to be documented, priced fairly, and reported correctly. Even a small oversight can trigger tax audits, fines, or funding delays.
In this article, we’ll cover practical strategies to help your business avoid common transfer pricing problems—so your international payments stay smooth, compliant, and cost-effective.
Understanding transfer pricing problems
Transfer pricing refers to the pricing of services or goods transferred between related business entities in different tax jurisdictions. When pricing isn’t aligned with fair market value or poorly documented, it creates red flags for tax authorities.
The most common transfer pricing problems businesses face include:
- Lack of proper documentation to justify pricing
- Incorrect or inconsistent markup percentages
- Delays in fund transfers due to compliance bottlenecks
- FX rate fluctuations and hidden bank fees
- Poor visibility and audit readiness
Startups in India operating under an offshore model where the global HQ funds the Indian subsidiary often run into these exact issues.
Build a consistent transfer pricing framework
The first step is getting your internal structure right. Every transaction between your global HQ and Indian subsidiary should follow a clear and consistent pricing policy. Here’s how to do that:
- Define service categories and roles clearly. Know what’s being delivered—marketing support, software development, customer service—and by whom.
- Apply a standard markup. Typically 12%–20%, depending on industry benchmarks and services involved. This markup ensures the Indian entity covers costs and maintains a margin.
- Keep contracts and documentation up to date. Any service arrangement between entities should be backed by agreements and invoices aligned with local tax laws.
Simplify your international payments process
Even with the right pricing strategy, many businesses still struggle with fund transfers. Traditional SWIFT transfers are slow, expensive, and offer little transparency. These issues can snowball into bigger problems when it’s time to reconcile accounts or meet tax deadlines.
Xflow helps businesses address these challenges head-on by:
- Locking FX rates in advance so you know exactly how much INR your Indian entity will receive
- Using local payment rails like Fedwire or ACH to bypass SWIFT fees and delays
- Delivering funds within 1 business day, not 3–5 days
- Generating eFIRA documents automatically, saving hours of manual follow-ups with banks
By streamlining payments and documentation, Xflow minimizes transfer pricing problems caused by operational inefficiencies.
Improve audit readiness and compliance
The biggest mistake businesses make? Treating compliance as an afterthought. Transfer pricing audits are increasing in India and globally, especially for startups receiving large international fund flows.
Here’s how to stay prepared:
- Maintain an audit trail. Keep a record of invoices, contracts, FX confirmations, and tax filings.
- Use tools that offer transparent reporting. Platforms like Xflow make it easier to track every transfer and generate audit-ready reports.
- File for GST refunds promptly. If your Indian entity pays IGST on service exports, don’t miss the refund window.
Being proactive about documentation and reconciliation will protect your business from unnecessary scrutiny.
Conclusion
Transfer pricing problems can derail growth if left unchecked. Whether you’re raising a new round of funding or scaling operations, your international payments must be fast, compliant, and transparent.
By building a strong pricing structure, simplifying cross-border fund transfers, and staying audit-ready, your business can stay ahead of compliance risks—and focus on what really matters: scaling globally.
With Xflow, startups and businesses operating across borders can eliminate inefficiencies and stay in full control of their transfer pricing operations.
