UK consults on aligning transfer pricing documentation requirements with OECD approach

By Doug Connolly, MNE Tax

The UK HM Revenue and Customs is considering potential new transfer pricing documentation requirements that would require businesses to prepare and provide specific documentation to support their transfer pricing positions in accordance with the OECD standardized approach, according to a March 23 consultation.

HMRC is also looking into requiring certain businesses to include details about related party transactions in their annual tax returns through some form of international dealings schedule.

Comments on the consultation’s proposed changes are due June 1.

Standardized OECD approach

The OECD standardized approach to transfer pricing, which many countries have already adopted, consists of the master file (general information on MNE), local file (local taxpayer affiliate data), and country-by-country report (data on MNE’s global activity).

While UK businesses are already required to support their transfer pricing positions, the new rules being considered would impose specific standardized documentation requirements. The UK, having already had its own recordkeeping requirements in place, has so far not adopted the OECD standard.

However, the HMRC now believes that delaying adopting the standardized approach has created some uncertainty for UK business regarding appropriate transfer pricing documentation and has resulted in inconsistent approaches. It believes standardization could create greater certainty for taxpayers and enable the HMRC to more efficiently target their compliance efforts.

International dealings schedule

An international dealings schedule requirement would be in addition to the master and local file requirements. The reporting would be done annually on a tax return schedule. Information required to be reported might include details on certain types of transactions, financial dealings, restructurings, transfer pricing methodologies, and more.

The requirement to file the additional information on cross-border intragroup transactions would apply to all UK businesses in scope of the transfer pricing legislation. Small and medium businesses would generally be exempt.

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Doug Connolly

Editor-in-Chief at MNE Tax

Doug Connolly is Editor-in-Chief of MNE Tax. He has more than 10 years of experience covering tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from American University Washington College of Law.

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