Following a public consultation on TP documentation, the UK government decided to introduce new legislation and require the largest MNE with presence in the UK to maintain a transfer pricing Master File, Local File and supporting Summary Audit Trail. The new requirements could take effect from April 2023.
In this article, we provide a summary on the background and the outcome of the consultation:
Background
From 23 March to 1 June 2021, HM Revenue & Customs held a public consultation on introducing more specific transfer pricing documentation requirements in the UK. On 30 November 2021, HM Revenue & Customs published the outcome of the consultation on the government website together with HM Revenue & Customs’ response on the submissions received.
Outcome
The UK government decided to introduce a requirement for the largest MNEs with a presence in the UK to maintain (and provide upon request) a transfer pricing Master File and Local File documentation in line with the OECD standardised approach.
The UK government also intends to introduce an additional requirement in the form of a Summary Audit Trail. The Summary Audit Trail is a short document which summarises the work undertaken by the taxpayer in arriving at the conclusions in their TP documentation.
The outcome document does not define what the term “largest” means. Based on a conversation with HMRC officials, we understand that the requirements to prepare the Master File, Local File and Summary Audit Trail shall apply to MNEs which meet the CbCR threshold. Should the rules be implemented in this form, a threshold of EUR 750 million based on consolidated group revenues would apply.
At present, the UK government does not intend to implement the additional requirements suggested in the consultation document, an International Dealings Schedule (“IDS”) or a detailed evidence log, which would have increased the potential compliance burden for MNEs with a presence in the UK.
It is planned that draft legislation will be prepared in 2022 and published later this year. The new transfer pricing documentation requirements could then take effect from April 2023.
Our assessment
Our view on the outcome of the consultation is that introducing transfer pricing documentation requirements in line with the OECD standardised approach will help MNEs to achieve greater certainty regarding the content and extent of the documentation required in the UK.
We appreciate that an IDS and detailed evidence log will not be introduced since it would have been counterintuitive to introduce additional unilateral requirements, especially when considering the great lengths that the OECD and all the contributing tax authorities, including the UK, went to in agreeing upon a format for the provision of transfer pricing information. The introduction of the Summary Audit Trail to document the steps taken in preparing transfer pricing documentation appears to be more limited and could be useful to structure and approach the preparation of transfer pricing documentation in a methodical way.
Next steps
We now await the publication of the draft legislation to implement these new transfer pricing documentation requirements together with guidance on the content of the Summary Audit Trail.
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