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July 27, 2023

UK publishes requirements for Transfer Pricing records

  • The UK Government has published regulations to specify the form and manner in which relevant Transfer Pricing records are to be kept and preserved with reference to the Organisation for Economic Co-operation and Development's Transfer Pricing Guidelines.
  • The regulations have effect for corporation tax purposes in relation to returns for accounting periods beginning on or after 1 April 2023 and for income tax purposes from the tax year 2024-25.


The UK's Finance (No. 2) Act 2023 authorized regulations to be introduced to specify the form and manner in which relevant Transfer Pricing records are to be kept and preserved with reference to the Organisation for Economic Co-operation and Development's (OECD's) Transfer Pricing Guidelines.

The Transfer Pricing Records Regulations 2023 have now been laid in Parliament and will come into force on 9 August 2023. They were subject to consultation in December 2022 and have undergone significant changes. The final regulations include new sections to define certain key terms, and the information that may be excluded from the Local File has been amended for clarification.

New regulations

The regulations apply to certain United Kingdom (UK) entities undertaking controlled transactions at a material level and operate in addition to general transfer pricing documentation requirements.

The regulations have effect for corporation tax purposes in relation to returns for accounting periods beginning on or after 1 April 2023 and for income tax purposes from the tax year 2024-25.

UK entities that are members of a Multinational Enterprise (MNE) group that meets the Country-by-Country Reporting (CbCR) threshold in a given period are within scope of this legislation. A UK entity, for the purposes of the MNE group test, includes any of the following:

  • A UK resident company or a company required to file a company tax return in the UK
  • A partnership in relation to which a partnership return is required to be filed in the UK
  • A trust in relation to which a return is required to be filed in the UK

An MNE group meets the CbCR threshold when it passes the following tests:

  • It includes two or more enterprises that are resident for tax purposes in different jurisdictions
  • It has consolidated group revenues of at least €750 million, either as shown in its consolidated financial statements, or as would have been shown if it had been required to produce them, for the period

The regulations also allow the His Majesty's Revenue & Customs (HMRC), through a notice published by the Commissioners for HMRC, to require that affected taxpayers maintain supplementary information relating to the preparation of the Local File. It is envisaged that this power will be exercised to impose a requirement to keep and preserve a Summary Audit Trail (SAT). The SAT will be the subject of further consultation in 2023, before being introduced.

HMRC guidance

HMRC has also added a new Transfer Pricing Records section to its International Manual to provide detailed guidance on the new requirements.


Any transactions that are excluded from the Local File must still be priced in accordance with the arm's-length principle. Furthermore, for those not obliged to keep and preserve a Master File and Local File in accordance with the 2022 Transfer Pricing Guidelines, the guidelines still represent the standard approach recommended by the OECD. HMRC is of the view that an appropriate way to demonstrate that provisions between related parties adhere to the arm's-length principle is to prepare documentation in line with the OECD's recommended approach, even where the MNE group test is not met.

Preparation of UK Local File

Although the Local File is an entity-specific document and should be prepared on an entity-by-entity basis, an MNE group may prepare an amalgamated country-specific Local File. When the UK entity does not have any material categories of controlled transaction, or when the only material controlled transactions with related businesses are covered by the UK-to-UK exemption or the APA exemption, the relevant person is not required to prepare a Local File.

HMRC has, however, confirmed that the UK-to-UK exemption will not apply if either:

  • One of the UK entities has made an election under section 357A of the Corporation Tax Act 2010 (election for special treatment of profits from patents etc.)
  • One or more of the UK entities is carrying on a ring-fenced trade as defined in section 277 of the Corporation Tax Act 2010

If the relevant person is not required to keep and preserve a Local File, the relevant person is also not required to keep and preserve a Master File.

Materiality and aggregation of transactions

HMRC has issued guidance regarding transactions that are not material and hence can be excluded from the Local File. To determine the materiality of a category of controlled transactions for a UK entity, all the transactions within the category must be aggregated. The Local File is an entity-based document; therefore, materiality should be viewed from the perspective of the UK entity preparing the Local File rather than the MNE group as a whole.

HMRC considers that a de minimis threshold of £1 million can be applied to each category of transactions. If the aggregate value of the transactions within a category does not exceed £1 million, those transactions do not need to be reported in the Local File.

However, HMRC notes that certain categories of transactions will always be considered material due to their nature and complexity, and these should always be included in the Local File, regardless of value. For the following material categories of transactions, the de minimis threshold does not apply:

  • Transactions priced using a profit-split methodology
  • Transactions concerning the transfer or licence of intangible assets
  • Transactions concerning hard-to-value intangibles
  • Transactions concerning the transfer, use, or right to use key or strategic assets that are required for the entity to carry on its business
  • Transactions concerning global or regional strategic or leadership services
  • Transactions concerning cost sharing agreements or cost contribution agreements
  • Transactions concerning business reorganisations, including where functions, assets or risks have been moved into or out of the UK during the relevant period
  • Commencement or cessation of transactions in the relevant period

For all other categories of transactions, entities should make their own determinations regarding what is considered material, taking into account all the relevant facts and circumstances. HMRC makes the point that it is important for entities to set out their chosen approach to materiality in the Local File.

Making records available

Transfer pricing analysis, including documentation, should be prepared and maintained contemporaneously; i.e., transfer pricing records should be prepared before submitting the annual corporate income tax return. HMRC's guidance notes that, together, the Master File and UK Local File make up the specified transfer pricing records that form part of the statutory records of any UK entity, or relevant person and should be available to HMRC within 30 days upon request. Therefore, information notices requesting the specified transfer pricing records cannot be appealed.

Entities that are not obliged to keep and preserve a Master File and Local File are still required to have the Transfer Pricing analysis completed before submitting the annual corporate income tax return to be able to support the arm's-length pricing.

HMRC expects the specified transfer pricing records to be reviewed annually, at a minimum, and updated as necessary. Whether or not there are updates, there will need to be a specific set of finalized records for each period.

Frequency of updates

The requisite frequency of performing a new benchmarking study in cases where the operating conditions remain unchanged will depend on a range of factors, such as those outlined at paragraph 3.82 of the OECD's 2022 Transfer Pricing Guidelines. It is important to note that any functional changes will necessitate the execution of fresh benchmarking studies. While the database searches may not need to be conducted annually in certain circumstances, updating the financial data for the comparables on a yearly basis is essential to ensure the arm's-length principle is applied reliably. Maintaining annually updated financial data for comparables is therefore vital for ensuring compliance with transfer pricing regulations and achieving arm's-length pricing.


A penalty of up to £3,000 may be charged for each failure to keep or to preserve adequate records in respect of a return and this includes the specified transfer pricing records.

In addition, HMRC's guidance notes that a relevant person's failure to keep and preserve a Master File and/or Local File in accordance with the 2022 Transfer Pricing Guidelines may impact subsequent penalty considerations if HMRC later finds an inaccuracy in a return that relates to transfer pricing. The guidance also states that maintaining the specified transfer pricing records is within the Senior Accounting Officer's responsibilities and failure to keep the records may indicate adequate accounting processes and arrangements have not been established within the organization.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United Kingdom), London

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor


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