UK and International Tax news

New Transfer Pricing Documentation

Wednesday 17th August 2022

HMRC have recently announced that additional transfer pricing documentation requirements are to be introduced with effect from April 2023.

It has been more than six years since the OECD presented a package of measures in response to the G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan, including a requirement to develop rules regarding transfer pricing documentation.

The BEPS Action 13 Final Report, on Guidance on the Implementation of Transfer Pricing Documentation and Country-by-Country Reporting, recognised the importance of having the right information at the right time to identify and resolve transfer pricing risks. This led to the introduction of guidance on a standardised approach to transfer pricing documentation. The standardised approach consists of:

  • a master file containing standardised information relevant for all multinational enterprise group members,
  • a local file referring specifically to material transactions of the local taxpayer,
  • a Country-by-Country report for the largest multinational enterprise groups containing aggregate data on the global allocation of income, profit, taxes paid and economic activity among the tax jurisdictions in which it operates.

The UK implemented the CbC minimum standard with effect from January 2016, but did not introduce specific requirements regarding master or local files because the UK already had broad record keeping requirements. The absence of specific transfer pricing documentation requirements and supporting guidance has created a degree of uncertainty for UK businesses regarding the appropriate transfer pricing documentation they need to keep, leading to inconsistency of approach.

HMRC launched a consultation on updating transfer pricing documentation in March 2021 with comments requested by June 2021.  A response to this consultation was published in November 2021 with the announcement that consultation on draft legislation would take place in 2022 with legislation taking effect from April 2023.

This latest measure will implement the additional recommendations of the BEPS Action 13 Final Report on the master file and local file and, in particular, the format in which this should be done.

The measure will also introduce a “summary audit trail” (SAT) requirement. This will require businesses to complete a questionnaire detailing the main actions they have taken in preparing the transfer pricing local file document.

The new requirements will apply to businesses with accounting periods commencing on or after 1 April 2023.

If you would like further information on the above, please contact Keith Rushen on 0207 486 2378

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