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On 23 March 2021 HMRC issued a consultation which proposes new transfer pricing documentation rules.
As things stand, HMRC does not prescribe the form or content of transfer pricing (TP) documentation for UK taxpayers. However, it is now consulting on a requirement for large groups with UK operations to be ready to produce a specific UK-focused TP file within 30 days of a request.
HMRC has also proposed changes to the documents it receives from taxpayers. These include an ?evidence log? which would provide specific data and facts to help better inform a TP risk assessment, and an International Dealings Schedule (IDS) which would accompany annual tax returns.
While many other countries quickly mandated all of the Organisation for Economic Co-operation and Development (OECD)'s base erosion and profit shifting (BEPS) Action 13 requirements (master file, local file and country-by-country-report (CbCR)), only the CbCR is currently in force in the UK. The consultation seeks to address apparent concerns from HMRC around documentation quality.
The consultation puts forward a list of 18 questions covering three key topics:
As mentioned, the consultation does not seek to differentiate between sectors. However, financial services clients may consider the following:
The consultation is a clear signal from HMRC that TP will continue to be a focus of its resources. It does not quote a specific expected yield from the proposed changes, but it references the £6 billion of tax revenue generated from transfer pricing compliance activities in the past five years.
This increased focus will inevitably come at the cost of a higher compliance burden for UK-based taxpayers. The responses to the consultation will help to potentially limit this.
For the financial services community it will be important that the specificities of cross-border transactions in financial services groups are properly understood by HMRC and reflected in the guidance. The deadline for responding to the consultation is 1 June 2021.
Richard Murray, Partner, Global Transfer Pricing Services, KPMG UK