In April 2023, the United Kingdom will implement new transfer pricing documentation regulations that align with the G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan. This change is put in place to make sure that companies retain Transfer Pricing records in a standardized format as outlined by the OECD.
The new measure enters into effect on the 1st of April, and it applies to large MNEs with accounting periods commencing on or after 1 April 2023.
While the UK had already adopted the Country-by-Country minimum standard, it did not create specific guidelines for the Master and Local files as the UK already had extensive record-keeping rules.
This lack of specific Transfer Pricing documentation requirements has caused uncertainty for UK businesses and inconsistent approaches to be taken. To address this, HM Revenue and Customs (HMRC) will implement the additional recommendations of the BEPS Action 13 Final Report for Local and Master files. However, a Master File is only required if overseas jurisdictions in which a group operates have a lower documentation threshold than the UK.
Furthermore, a Summary Audit Trail (SAT) requirement will be introduced, where businesses must complete a questionnaire detailing the main actions taken in preparing the local file. The SAT requirement will not be introduced on the 1st of April alongside local file and master file regulations in order for the HMRC to clarify its proposal. However, it should be taken into account that the legislation has been drafted in a way that enables HMRC to introduce the SAT through a published notice at a later stage with no need for additional legislation.
Who is in scope?
The new regulations apply to large MNEs with consolidated revenues of €750m that operate in the UK.
However, businesses with consolidated revenues between €50m and €750m and more than 250 employees should maintain transfer pricing records that follow the Local File template. Additionally, a Master File is only required for non-large businesses if an overseas jurisdiction in which the group operates has a lower documentation threshold than the UK.
For further consultation on the applicability of the new UK transfer pricing requirements, contact one of our professionals.