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HM Revenue & Customs (HMRC) has issued new guidelines designed to provide UK businesses with clarity and transparency regarding transfer pricing compliance. These guidelines aim to help businesses manage compliance risks and ensure they meet HMRC’s expectations effectively.
The Guidelines for Compliance outline HMRC’s expectations for UK businesses in managing transfer pricing risks. The document focuses on several key areas:
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HMRC’s Expectations: The guidelines clarify the role that UK businesses should play in managing transfer pricing compliance risks. They highlight common risk areas and provide best practice recommendations to help businesses effectively manage these risks. Additionally, the guidelines suggest useful types of real-time information and records to maintain for compliance purposes.
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Common Risk Areas: The guidelines identify typical risks associated with transfer pricing, such as issues in scoping, preparation, analysis, and documentation. Best practices for managing these risks are also outlined to assist businesses in maintaining compliance.
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Documentation and Record-Keeping: Businesses are advised on the types of records and real-time information they should keep to support their transfer pricing compliance efforts.
TARGET AUDIENCE
The guidelines are relevant for:
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Businesses Required to Maintain Documentation: Those that must adhere to master and local file documentation requirements.
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Exempt Businesses: Those exempt from these documentation requirements but still required to file and support an arm’s length return.
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Newly Subject Businesses: Entities falling within the scope of transfer pricing rules for the first time.
SCOPE OF APPLICATION
The guidelines apply to UK businesses, regardless of head office location, involved in transactions covered by UK transfer pricing legislation.
EXCLUSIONS
The guidelines do not apply to businesses qualifying for the SME exemption, which generally includes:
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Small Enterprises: Businesses with up to 50 staff and annual turnover or balance sheet total of less than €10 million.
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Medium Enterprises: Businesses with up to 250 staff and either annual turnover of less than €50 million or a balance sheet total of less than €43 million.
GUIDELINE STRUCTURE
The guidelines are divided into several parts to address different audiences:
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Part 1: Assists UK risk leads in establishing and evidencing effective transfer pricing compliance processes.
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Parts 2 and 3: Provide transfer pricing specialists with best practices for policy and documentation.
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Annex A: Includes examples of helpful supporting records and information.
ROLES DEFINED
- UK Risk Leads: Senior finance, risk, and tax roles within UK businesses responsible for managing tax risk, accounting risk, and filing tax returns. Examples include UK tax compliance managers and finance directors.
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Transfer Pricing Specialists: Tax professionals handling transfer pricing compliance, either in-house or through third-party service providers.
BEST PRACTICES AND COMPLIANCE
Businesses are encouraged to take an active role in managing transfer pricing compliance and leverage their understanding of their UK operations. These guidelines should be read alongside HMRC’s International Manual (INTM410000 to INTM480000), which covers transfer pricing principles and legislation.
While the guidelines provide useful insights, they are not exhaustive. They do not offer assurances of compliance but can be complemented by Advance Pricing Agreements (APAs) or participation in the International Compliance Assurance Programme (ICAP). Although financial transfer pricing is briefly addressed, businesses should be mindful of associated risks.
