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Purpose, audience and use

Published 10 September 2024

The purpose

Guidelines for Compliance aim to reduce uncertainty for UK businesses by providing greater clarity and transparency of HMRC’s compliance expectations. Help with common risks in transfer pricing compliance is designed to help businesses reduce uncertainty in their transfer pricing compliance approaches by:

• providing HMRC’s expectations of the role the UK business should perform in managing transfer pricing compliance risk
• highlighting common risk areas to watch out for, or for which greater scrutiny is recommended, together with best practice approaches to assist UK businesses
• suggesting useful forms of real time information and records to be retained
• raising awareness amongst specialists of common risks in scoping, preparation, analysis and retention of transfer pricing documentation and best practice
• highlighting common indicators of risk in designing and selecting transfer pricing policies

These guidelines are relevant for:

• businesses where master and local file documentation requirements apply
• businesses who may be exempt from the master and local file documentation requirements but must still file and be able to support an arm’s length return
• businesses falling within the scope of transfer pricing rules for the first time

Our audience

These guidelines apply to businesses operating in the UK, or which have a presence, regardless of head office location, with transactions between parties falling within the UK transfer pricing legislation (read Part 4, Taxation (International and Other Provisions) Act 2010) as referenced in International Manual INTM412020, including transactions with related UK entities.

For the purposes of these guidelines, we refer to this as ‘transfer pricing rules’.

Certain businesses do not fall within the scope of the transfer pricing rules, such as those that qualify for the SME exemption that applies to most small and medium enterprises, and as such these guidelines do not apply to them. 

Your business is a ‘small’ enterprise if it has no more than 50 staff and either an annual turnover or balance sheet total of less than €10 million.  

Your business is a ‘medium sized’ enterprise if it has no more than 250 staff and either an annual turnover of less than €50 million or a balance sheet total of less than €43 million. 

Where the entity is a member of a group, or has an associated entity, these limits apply to the whole group and not the specific entity. 

There are exceptions to the SME exemption, that may mean your business falls within the scope of UK transfer pricing rules even if it meets the thresholds. Read INTM412070 for details of these exceptions and exemptions from the transfer pricing rules.

These guidelines aim to raise awareness of how UK businesses can play an active role in transfer pricing compliance, in addition to highlighting best practice for specialists by structuring content for different primary audiences:

• part 1 — to assist ‘UK risk leads’ and their associated group functions in establishing and evidencing effective UK transfer pricing compliance processes
• parts 2 and 3 — to assist ‘transfer pricing specialists’ in best practice policy and documentation approaches
• annex A — to assist UK risk leads and specialists with examples of helpful supporting records and information

In these guidelines, UK risk leads and transfer pricing specialists will find help with best practice approaches to manage common transfer pricing compliance risks that can result in understatement of profits or overstatement of losses in filed positions.

Defining UK risk leads and transfer pricing specialists

‘UK risk leads’ refer to senior finance, risk and tax roles within UK businesses falling within scope of transfer pricing rules. They are not necessarily transfer pricing specialists, but they are responsible for managing UK tax risk, accounting risk and filing tax returns.

We recommend identifying UK risk leads. Roles may include:

• UK tax compliance manager
• UK finance director
• UK finance controller
• UK environmental, social and governance (ESG) lead
• Senior Accounting Officers (SAOs)

‘Transfer pricing specialists’ would typically include tax professionals conducting transfer pricing compliance work on behalf of UK businesses, whether in-house or within third party specialist service providers.

HMRC has observed that UK businesses are in a stronger position to mitigate transfer pricing compliance risk when they both:

• adopt an active role in transfer pricing compliance
• leverage their understanding of the UK business

How to use these guidelines

These guidelines are not stand alone and should be read alongside HMRC’s guidance relating to transfer pricing within its International Manual INTM410000 to INTM480000. This summarises:

• transfer pricing principles
• master and local file requirements
• the main UK transfer pricing legislation
• interpretation in relation to certain transactions and structures

Where master and local file requirements apply, the content of these guidelines should be read as best practice approaches to compliance planning, analysis and supporting information in preparing master and local files.

In setting out HMRC expectations and best practice these guidelines set out approaches that minimise transfer pricing compliance risk. They are based on high quality examples of compliance observed by HMRC. Risk can include the risk of error, adjustment, audit and penalties. Read INTM483110 for guidance on penalties in transfer pricing cases and INTM483120 for 9 illustrative penalty examples.

Not all expectations or best practice approaches will be relevant for all businesses. A degree of judgement on adoption of recommendations, conduct of underlying work and supporting evidence is required. The degree needed to robustly support transfer pricing positions, evaluate and mitigate any high risk indicators will vary. This is likely to be impacted by:

• the size and complexity of the business and group
• risk profile of the business such as level of business change
• volume and materiality of intra-group transactions in scope
• the extent to which previous transfer pricing documentation was of insufficient depth
• the extent to which policy risk indicators have not been previously evaluated to determine that they do not impact the arm’s length position

In applying these guidelines, businesses should not extend compliance activity to adjustments within the scope of ‘minor or marginal adjustments’. Read paragraph 2.11 of the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TPG), January 2022 .

For any errors or adjustments identified after reading these guidelines, where tax affairs need to be brought up to date, read the part on next steps at the end of these guidelines.

Scope of use

As a form of guidance, these guidelines are part of HMRC’s known position for UK businesses who need to consider whether their transactions fall within the uncertain tax treatment (UTT) notification obligations. These guidelines are not however, a replacement of HMRC’s guidance within the International Manuals and do not represent any change in HMRC policy. Read the Legislation and guidance part for more information.

Examples of compliance risk included are intended to be non-exhaustive. They are based on risks most commonly encountered by HMRC. No inference should be made as to the risk profile of transactions not covered by these guidelines, nor any priority assumed from the presentational order of the risks highlighted.

These guidelines do not provide any assurances on transfer pricing positions. Businesses seeking greater confidence may consider applying for an Advance Pricing Agreement (APA) — read how to apply for clearance or approval of a transaction from HMRC for more information. 

Businesses may also wish to consider participation in a multilateral risk assessment under the International Compliance Assurance Programme (‘ICAP’).

Financial transfer pricing is not covered in depth within these guidelines. However, many of the best practice suggestions remain relevant regardless of the type of transaction. Limited reference to specific compliance risk areas, including financial transfer pricing, should not be taken to imply that HMRC does not believe these areas contain risk. In the future HMRC may develop further Guidelines for Compliance to supplement this product.  

In 2023, HMRC consulted on a package of proposed reforms to areas of UK international tax legislation including transfer pricing.

A summary of responses to that consultation was published in January 2024. The content of these guidelines should be read in the context of any legislative changes that are subsequently made. Including any relaxation of the requirement to apply transfer pricing rules to provisions between UK entities.