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July 26, 2022 UK publishes draft legislation on new transfer pricing documentation requirements
On 20 July 2022, the United Kingdom (UK) Government published draft legislation as part of the draft Finance Bill 2022/23 which will make it a requirement for large multinational businesses operating in the UK to keep and retain transfer pricing documentation in a prescribed and standardized format, set out in the Organisation for Economic Co-operation and Development’s (OECD) Transfer Pricing Guidelines. The draft legislation was accompanied by a summary policy paper. Background The final OECD Action 13 report recommended a standardized approach to transfer pricing documentation consisting of:
While the UK implemented the CbC minimum standard, it did not introduce specific requirements regarding master file and local file because the UK already had broad record keeping requirements. However, the Government has noted that the absence of specific transfer pricing documentation requirements and supporting guidance has created a degree of uncertainty for UK businesses regarding the appropriate transfer pricing documentation they need to keep, leading to inconsistency of approach. Summary For accounting periods commencing on or after 1 April 2023, large multinationals will be required to produce a master file and local file, as well as a “summary audit trail” (SAT), i.e., a questionnaire detailing the main actions they have taken in preparing the transfer pricing local file. This applies to large multinational businesses within the Country-by-Country Reporting (CbCR) regime, with global revenues of €750m or more, operating in the UK. Although the requirements will only be compulsory for businesses with the CbCR regime, the UK Government has previously said it recognizes the master file and local file as representing best practice for transfer pricing documentation and said it encourages all customers required to apply transfer pricing to take this approach to documentation, where appropriate. The legislative changes are summarized in the policy paper as follows:
For additional information with respect to this Alert, please contact the following: Ernst & Young LLP (United Kingdom), London
Ernst & Young LLP (United States), UK Tax Desk, New York
Ernst & Young LLP (United States), FSO Tax Desk, New York
Ernst & Young LLP (United States), Transaction Tax Desk, New York
Ernst & Young LLP (United States), UK Tax Desk, Chicago
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