HMRC’s Renewed Focus on Transfer Pricing from April 2023

HMRC’s Renewed Focus on Transfer Pricing from April 2023

Transfer Pricing is usually on the finance team’s to-do list and usually is prioritised as a nice to have! With new legislation coming into force, HMRC’s Transfer Pricing returns from enquiries at an all-time high (exceeding £2billion in the most recent figures for 2021) and the new higher corporate tax rate of 25% doubling the ‘down the road’ Irish corporate tax rate of 12.5% from April 2023 – now is the time for Transfer Pricing to be prioritised.

However, following HMRC’s recent consultations and to bring it in line with most OECD countries, for accounting periods beginning on or after 1 April 2023, a new approach will become a legal requirement. Currently, UK transfer pricing rules require businesses to have ‘sufficient documentation’ which is usually determined by the complexity of the organisation and that OECD Local and Master files are best practice.

As in most jurisdictions, there are three tiers of Transfer Pricing compliance:

  • Master File which sets out an overview of the group’s business, the nature of its global operations, its value drivers, its overall transfer pricing policies and its global allocation of income and economic activity. Ideally, this should include a detailed value chain analysis considering how different parts of an international group work together to create value and defining value created by each of those parts.
  • Local country files which incorporate details of material intragroup transactions for the local taxpayer for the year and supporting pricing analysis for each entity.
  • 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’s threshold for compliance being for Group’s with consolidated turnover exceeding €750 million for all of the above, however businesses operating on an all-island basis should note that the requirements for an Irish local file applies once turnover exceeds €50million.

The additional requirement of Group’s including a Summary Audit Trail (‘SAT’) has been delayed and is undergoing further consultation, so can remain off those to-do lists for now.

If you would like further information or have any questions, contact our Tax team: Maybeth Shaw, Lorraine Nelson.