Jurisdiction Under Scrutiny: 15 Things to Know About Transfer Pricing in United Kingdom
04/25/25
- Transfer pricing is regulated by His Majesty’s Revenue and Customs (HMRC). There are no material differences from the OECD format and UK regulations.
- The United Kingdom (UK) subscribes to the OECD’s transfer pricing rules, and the guidelines are required to be used in interpreting the rules. This is codified in Section 164 of the TIOPA 2010 in that UK TP provisions are in alignment with Article 9 of the OECD Model Tax Convention and its TP guidelines.
- UK multinational entities meeting the CBCR threshold of consolidated group revenues—EUR750 million—are required to prepare and maintain annually a master file and a UK local file for periods beginning on or after April 1, 2023.
- Submission is not required, but both the master file and the local file must be completed by the tax return filing date.
- Companies have 30 days to submit the master file and local file when requested by HMRC.
- While companies that do not meet the statutory reporting requirements are not compelled to produce the master file and local file, it is considered best practice as the standard approach for demonstrating their adherence to arm’s-length standards. A TP analysis should be completed prior to the corporate income tax return due date.
- Branches and PEs are also required to adhere to the HMRC TP requirements, and the exact nature of the analysis will depend on the terms of the applicable double taxation agreement.
- The UK local file is an entity-specific document, but an MNE group may prepare an amalgamated jurisdiction-specific Local File. When there are significant differences between entities in the MNE, it’s best to produce individual local files.
- HMRC considers a category of transactions aggregating less than £1 million as deminimus and need not be reported. With that said, there are exceptions to this as follows
- Profit splits
- Transfer or license of IP
- Any hard to value intangibles
- Any core competencies required to enter or carry on the business
- Cost sharing and/or cost contribution agreements
- Expat/inpat business reorganizations
- Commencement or cessation of transactions
- The UK accepts answers to the TP inquiry in English but allows time for translations.
- The corporate income tax returns are due 12 months after the close of the financial year, and the master file and local file should be completed on or before the deadline.
- HMRC accepts regional comparables.
- Single-year testing of the tested party against multi-year comparable data.
- HMRC accepts the interquartile range.
- While new comparable searches are not required unless circumstances have changed, best practices would follow annual review in uncertain times.
