Transfer pricing

Transfer pricing requirements to change for UK companies from April 2023

From April 2023, it will become a requirement for UK companies that fall within the UK transfer pricing legislation to maintain transfer pricing documentation using HMRC’s template.


Historically, UK companies that are required to consider transfer pricing were able to document their approach in any way they saw fit. HMRC’s argument for mandating a particular format is that it will give certainty through operating a consistent approach. Our view, is that it is more likely that this is about simplifying HMRC’s risk reviews. In any event, UK companies will need to adapt their approach to comply.

Importantly, the company will not need to file the documentation with HMRC – unless they are very large and are within the country by country reporting regulations – they simply need to make sure they have it in the right format if asked to present it to HMRC as part of an investigation. 


What is transfer pricing? 

The UK’s transfer pricing legislation details how transactions between connected parties are handled, and in common with many other countries, is based on the internationally recognised ‘arm’s length principle’. The UK’s transfer pricing legislation also applies to transactions between any connected UK entities. 


For tax purposes, such transactions are treated by reference to the profit that would have arisen if the transactions had been carried out under comparable conditions by independent parties. 


Transfer pricing documentation (TPD)/Country by Country

Large multinational businesses operating in the UK, with an accounting period commencing on or after 1 April 2023, will now be required to keep and retain TPD in a prescribed (specific guidance is set out in the OECD’s Transfer Pricing Guidelines) and standardised UK format. 


Whilst HRMC is yet to release the form, we understand that it will follow OECD guidance that applies to country-by-country reporting. It may therefore also include some sort of questionnaire detailing the main actions the company has taken in preparing its TPD.


All large multinational businesses are caught by the transfer pricing legislation. There is an exemption that will apply for most small and medium sized businesses. As a reminder: 


  • A business is a ‘small’ enterprise if it has no more than 50 staff and either an annual turnover or balance sheet total of less than €10 million.
  • A business is a ‘medium sized’ enterprise if it has no more than 250 staff and either an annual turnover of less than €50 million or a balance sheet total of less than €43 million


There are circumstances where TPD requirements may apply to small and medium sized businesses, for example where there is a transaction with a related entity in a territory with which the UK does not have a double tax treaty with an appropriate non-discrimination clause.  


It is also important to consider that whilst SMEs are largely exempt from transfer pricing legislation in the UK, no such exemption exists in many of the overseas jurisdictions into which they may have expanded into, and again we are looking into this in more detail for some of our clients to ensure that “the other end” of their transactions are compliant.


Please note that if your global group turnover is more than €750 million, you fall within the scope of country-by-country reporting, which will require you to maintain and file additional pricing transfer documentation.


What next?

If you have any questions or would like to understand more about how this impacts you, reach out to our Gravita expert, Thomas Adcock.

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