On 20 July 2022, the UK Government published draft legislation as part of the Finance Bill 2022-23 which will make it a requirement for large multinational businesses operating in the UK to keep and retain transfer pricing (TP) documentation in a prescribed and standardized format as set out in the OECD’s TP guidelines.

In recent years there have been significant developments in the field of international tax. It has been more than six years since the OECD presented a package of measures in response to the G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan including a requirement to develop rules regarding transfer pricing documentation. The Action 13 Final Report recognized the importance of having the right information at the right time to identify and resolve transfer pricing risks. This led to the introduction of guidance on a standardized approach to transfer pricing documentation. The standardized approach consists of:

• a master file containing standardized information relevant for all multinational enterprise group members
• a local file referring specifically to material transactions of the local taxpayer
• a Country-by-Country (CbC) report for the largest multinational enterprise 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 Country-by-Country minimum standard but did not introduce specific requirements regarding master file and local file because the UK already had broad record keeping requirements.

This measure will implement the additional recommendations of the BEPS Action 13 Final Report of the master file and local file. UK businesses are already required to keep and retain sufficient records to demonstrate that their tax returns are complete and accurate, including in respect of any figures affected by the transfer pricing rules, but this will prescribe the format in which this should be done.

Additionally, the measure will also introduce a “summary audit trail” (SAT) requirement. This means that businesses must complete a questionnaire detailing the main actions they have taken in preparing the transfer pricing local file document.

This measure will apply from 1 April 2023. It will apply to businesses with accounting periods commencing on or after 1 April 2023.