UK and International Tax news

Transfer Pricing Documentation Update

Tuesday 7th December 2021

HMRC has issued a summary of the responses received to its consultation on transfer pricing documentation launched in March 2021.

The government launched a consultation on transfer pricing documentation in March 2021 in order to explore whether the largest businesses with a presence in the UK should be required to maintain, and produce upon request, master file and local file documentation per the OECD’s standardised approach. It also wanted to explore the idea of introducing an International Dealings Schedule to report data on cross border transfer pricing transactions.

Respondents indicated that most MNE groups already prepare a master file and many follow OECD principles in preparing a UK local file although there was variation in detail and format of the latter.

Many respondents suggested that any new master file or local file requirements should be aligned with OECD guidelines, in view of the additional compliance burden associated with local territory variations. Respondents also raised a number of concerns about the proposal for an evidence log to be required as part of the local file.

With regard to any requirement to prepare the IDS, many respondents were concerned about the costs and administrative burdens. The government has indicated that it recognises many businesses do not have internal reporting systems which can automatically report intercompany transactions and manual reporting may therefore be necessary. There would need to be investment in systems and data management processes to automate the IDS.

If implemented, respondents asked that the government consults on the type and form of data which is to be included and take views from across a range business sectors to ensure the final product is workable for all, particularly where there may be large volumes of intragroup transactions, such as in the financial services sector. If there is any future development of the IDS, it must strike the right balance between costs and benefits and further consultation would be needed to achieve this.

The government intends to consult on draft legislation in 2022 to introduce a requirement for the largest customers to maintain and provide on request master file and local file documentation.  It will not however implement or consult further on the IDS at the present time, but will keep the issue under review.  Any future consultation will pay particular attention to how the right balance can be achieved, between costs and administrative burden for customers and the benefits in terms of improved compliance.

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

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