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July 26, 2022

UK publishes draft legislation on new transfer pricing documentation requirements

  • The UK Government has published draft legislation on the new UK transfer pricing documentation requirements, which will apply to large businesses (groups with turnover above €750m). These requirements align with the OECD’s Transfer Pricing Guidelines.

  • The changes will apply for accounting periods beginning on or after 1 April 2023.

  • Further details are to be published as to how the changes will apply in practice, such as the specifics of the information required to be included in the new “Summary Audit Trail.”

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.


The final OECD Action 13 report recommended a standardized approach to transfer pricing documentation consisting 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

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.


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:

  • Record keeping: The draft legislation introduced changes to paragraph 21 Schedule 18 Finance Act 1998 and section 12B Taxes Management Act 1970 to introduce new powers to enable regulations to specify that the master file, local file and SAT questionnaire documents must be kept and preserved. These have not yet been published.

  • Information and inspection powers: Revisions are also being made to Schedule 36 Finance Act 2008 such that an information notice can specify transfer pricing information or documents referenced in the new regulations above. The changes also ensure that the relevant transfer pricing documents can be requested outside an enquiry, and it removes the requirement for the documents to have to be in the “possession or power” of the UK entity in question when they are in the “possession or power” of another person within the multinational group. This means that any documents relevant to the transfer pricing arrangements of a UK taxpayer that exist somewhere within the multinational group, will have to be supplied to HMRC (UK Tax Authority), even if those documents are held outside of the UK by another group company.

  • Penalties for errors: Changes are also being made to Schedule 24 Finance Act 2007 to make clear that failure to do the work necessary to maintain the relevant records or to produce those records on request will lead to the presumption that an inaccuracy is careless. A taxpayer can only displace this presumption by providing the documents and evidencing the underlying transfer pricing information had been prepared in advance of filing their corporation tax return, or otherwise showing they took reasonable care.

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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