On July 20, 2022 the UK Government released draft legislation introducing new transfer pricing documentation requirements for large multinational businesses operating in the UK. Based on the new legislation these large multinational businesses that are operating in the UK will be required to retain, and produce upon request, a master file, a local file and a summary audit trail. This measure will apply to businesses with accounting periods commencing on or after April 1, 2023.


Failures to do the work necessary to maintain the relevant records or to produce those records on request will lead to the presumption that an inaccuracy is careless. The relevant taxpayer can only displace this presumption by providing the documents and evidencing the underlying transfer pricing information had been prepared in advance of filing their Corporation Tax return, or otherwise showing they took reasonable care.


Large multinational businesses that are operating in the UK

The largest UK businesses in scope of the measure are those with a taxable presence in the UK (for example, through a UK company or permanent establishment) and are within the Country-by-Country Reporting regime (have global revenues of 750 million euros or more).


Required formats

The master file and a local file are to be kept and preserved in a prescribed and standardised format, as set out in the OECD's Transfer Pricing Guidelines (TPG).


Furthermore a requirement to complete a Summary Audit Trail, a questionnaire detailing the main actions undertaken in preparing the local file, is introduced.


Background note

In 2013, the Organisation for Economic Cooperation and Development (OECD) launched the action plan on Base Erosion and Profit Shifting (BEPS) to review a range of international tax issues in order to counter BEPS.


The OECD published the Action 13 Final Report in October 2015, introducing a three-tiered approach to transfer pricing documentation to encourage a global standardised approach that multinational businesses would be expected to follow.


The standardised approach consists of:

(i)    a master file containing standardised information relevant for all multinational enterprise (MNE) group members;

(ii)   a local file referring specifically to material transactions of the local taxpayer; and

(iii)  a Country-by-Country report (CbC) for the largest MNE 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 implemented the CbC minimum standard but had not introduced specific requirements regarding master file and local file because the UK already had broad record-keeping requirements.


Following consultation in March 2021, the government announced it would legislate to require the largest businesses to maintain a master file and local file, in the prescribed and standardised format, set out in the OECD’s Transfer Pricing Guidelines.


The government also announced the introduction of a Summary Audit Trail requirement, requiring businesses to complete a questionnaire detailing the main actions they have taken in preparing the local file.


The transfer pricing documentation which will be specified in the regulations proposed to be made under this new legislation will create a degree of certainty for UK businesses which are part of an MNE Group to which the regulations will apply regarding the appropriate transfer pricing documentation they need to keep, leading to consistency of approach. It will also provide HMRC with high quality data in a standardised format to target resources on the most significant areas of transfer pricing risk and reduce the time taken to complete compliance interventions.


The draft legislation as released by the UK Government on July 20, 2022 can be found here.


An explanatory note that the UK Government released on July 20, 2022 can be found here.



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