On 23 March 2021 HMRC released a public consultation document setting out some proposed changes to UK transfer pricing documentation requirements and on 30 November 2021 published its consultation outcome, summarising the representations it received, providing government comments and setting out a way forward, including further consultation on draft legislation and guidance in 2022.
The first tranche of draft legislation has now been published, on 20 July 2022, as part of the “L-day” release of the draft Finance Bill 2022-2023. This includes primary legislation to permit the issuance in the future of more detailed regulations to establish “specified relevant transfer pricing records” and the form and manner in which they need to be kept and preserved. Those regulations are expected to include confirmation of:
- the requirement to prepare and maintain OECD format Master File and Local File documents where the taxpayer group meets the CbCR consolidated revenue threshold of €750 million; and
- the requirement for a "Summary Audit Trail" (SAT), described in the materials accompanying the draft law as a questionnaire "detailing the main actions [the business has] taken in preparing the transfer pricing local file document".
The draft primary legislation confirms a start date of 1 April 2023 (accounting periods beginning on or after).
Whilst all of that is as expected, there are also some particularly noteworthy and significant changes to information powers and penalties for transfer pricing, including:
- a presumption of carelessness where a taxpayer fails to do the work necessary to maintain or to produce relevant records on request, with associated implications for penalties;
- the right for HMRC to request transfer pricing documents outside of a transfer pricing enquiry; and
- the removal of the requirement for documents to be in the "power and possession" of a UK entity when they are in the "power or possession" of another group entity.
