The United Kingdom (UK) has published the Transfer Pricing Records Regulations 2023, which updated transfer pricing documentation requirements by introducing Local file and Master file requirements. The UK has officially updated its transfer pricing documentation requirements with the enactment of the Finance (No.2) Act 2023, marking the culmination of a comprehensive two-year process that began with a public consultation document in March 2021. The Act, which received royal assent in July, brings the UK’s transfer pricing regulations more in line with the Organization for Economic Co-operation and Development (OECD) guidelines, particularly those developed under Base Erosion Profit Shifting (BEPS) Action 13.
Key provisions of the regulation include:
- Alignment with OECD Standards: The new rules closely align with the OECD model for documentation, referencing OECD guidelines to determine the format and content of the required records. This move aims to enhance transparency and international consistency in transfer pricing documentation.
- Master File and Local File Requirement: Large groups, defined as those meeting the Country-by-Country Reporting (CbCR) global turnover threshold of EUR 750 million are now obligated to maintain OECD format Master File and Local File documents in addition to existing CbCR requirements.
- Effective Dates: The implementation of the new rules is phased in based on the taxpayer’s accounting period. For corporation tax, the rules apply to accounting periods beginning on or after April 1, 2023, while for income tax, they will come into effect from April 6, 2024.
- Consequences for Non-Compliance: The Act empowers Her Majesty’s Revenue and Customs (HMRC) to specify specific transfer pricing recordkeeping requirements. Taxpayers who fail to comply with these rules face an increased risk of substantial penalties. Additionally, HMRC is granted additional powers regarding access to transfer pricing records and information.
