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HMRC has recently published a law to implement changes for the transfer pricing records in the UK. The changes were published on July 19th and are in force since August 9th 2023.

The new requirements will have effect on or after April 1st, 2023. The regulations apply to multinational groups which meet the Country-by-Country Reporting threshold of at least EUR 750 million. However, large businesses who are below the CbCR threshold and have material cross border intercompany transactions fall also in-scope of these regulations.

There are also some important exclusions. For example, an exemption applies in specific financial transactions, or when there is a local (e.g., UK-domestic) intercompany transaction. As well as in situations where the transaction is subject of APAs entered into on or before March 31st, 2023.

The UK allows to aggregate transactions when the economically relevant characteristics are materially the same as well as the transfer pricing method applied. Additionally, only material intercompany transactions should be covered in the Local File. The materiality should be reviewed from an UK perspective. It is considered immaterial if the value of the intercompany transaction is less than GPB 1 million. Some intercompany transactions should always be described in the Local File and it is irrelevant if the GBP 1 million threshold is met. These transactions relate to:

  • transactions priced using a profit split methodology;
  • transactions concerning the transfer or licence of intangible assets;
  • transactions concerning Hard to Value Intangibles;
  • transactions concerning the transfer, use, or right to use key or strategic assets that are required for the entity to carry on its business;
  • transactions concerning global or regional strategic or leadership services;
  • transactions concerning Cost Sharing Agreements or Cost Contribution Agreements;
  • transactions concerning business reorganisations, including where functions, assets or risks have been moved into or out of the UK during the relevant period, or
  • commencement or cessation of transactions in the relevant period.

The Transfer Pricing documentation should be reviewed and updated annually. If the HMRC requests you to provide the Transfer Pricing documentation, this generally needs to be delivered within 30 days. If you do not comply to this request, a penalty applies of €300 and daily penalties up to €60. A penalty of €3,000 may be imposed for incomplete transfer pricing documentation.

Key takeaways:

  • UK entities > Euro 750 million or material controlled transactions
  • Local File & Master File annually
  • Aggregate companies in one Country File or aggregate transactions is allowed
  • Content follows OECD Annexes
  • Specific Exemptions for:
    • Small intercompany transactions (less €1 million)
    • UK-domestic transaction (unless patent box)
    • APAs entered into on or before March 31st, 2023
    • Specific financial transactions
  • Always report transactions:
    • Relating to IP
    • Hard-to-value Intangibles
    • CCAs/CSAs
    • Business Restructurings/Acquisitions
  • Penalties: every day of failure to provide the files and per TP record that is incomplete

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