On 30 November 2021 the UK government published a summary of responses to the consultation on transfer pricing documentation held earlier in 2021.
The original consultation invited comments from interested parties on whether there should be a requirement for large businesses in the UK to maintain master file and local file documentation as recommended by the report on action 13 of the OECD project on base erosion and profit shifting (BEPS).
The consultation also suggested the possibility of introducing an International Dealings Schedule (IDS) for taxpayers subject to the UK transfer pricing rules. On the IDS taxpayers would report data on their cross-border transfer pricing transactions.
Master file and local file
The comments indicated that most multinationals that are currently required to submit a country-by-country (CbC) report are already preparing a master file, and many of these multinationals also prepare a UK local file generally in line with the OECD recommendations, although these local files may vary in their content and format.
The comments received in response to the consultation indicated that any new master file or local file requirements would need to be in line with the OECD guidelines, because variations between national laws of different countries would add to the compliance burden for multinationals. The respondents noted that there were some potential problems with the suggestion of an evidence log that could be required as part of the local file requirement.
International Dealings Schedule (IDS)
The commentators considered that a requirement to produce an IDS would lead to additional compliance costs and would create a new administrative burden for companies subject to transfer pricing requirements. In situations where the taxpayer does not have an internal reporting system that automatically reports intercompany transactions it would be necessary to prepare the IDS manually. Automation of the preparation of the IDS would require further investment to develop their systems and expand their data management processes.
In the view of the respondents there would need to be further consultation on the types of data to be entered in the IDS and the form would need to be practical for all business sectors. Some types of business such as financial services have large numbers of intragroup transactions and there would need to be rules on aggregating and reporting the information. The final form of the IDS would need to take into account the costs and benefits of gathering and submitting the information.
Draft legislation
During 2022 the UK government will publish draft legislation for consultation. This would introduce a requirement for large multinationals to prepare and provide on request master file and local file documentation.
The UK is not implementing the IDS yet, but the issue will be kept under review. In any further consultation the government will aim to achieve the right balance between administrative costs and benefits from improved compliance.
