Guidance

Annex D: UK profit and loss account analysed by transfer pricing policy pre-proposal

Published 10 January 2019

UK profit and loss account analysed by transfer pricing policy pre-proposal

Below are example table formats. This information should be provided for each UK entity or UK Permanent Establishment that is involved in the Disclosed Arrangements and the information should be replicated for each accounting period covered in the Disclosure Period.

Example 1

UK entity - Accounting Period Ended 31 December 2016. All amounts in £m. Sales to UK customers are booked in an EMEA Sales Principal company based overseas.

Transfer pricing policy	Shared service centre services - net cost plus 7.5%	Sales and marketing services - net cost plus 7.5%	Contract research and development services - net cost plus 15%	Statutory profit and loss
Overseas related party	IP co B Tax resident in Ruritania	EMEA Sales Principal in Panau	IP co B Tax resident in Ruritania
Third party revenues	0	0	0	0
Shared service centre revenue by source	14	0	0	14
Sales and marketing services revenue by source	0	43	0	43
Contract research and development revenue by source	0	0	9	9
Own operating expenses	(13)	(40)	(8)	(61)
Operating profit	1	3	1	5 (reconciles to total operating profit per UK statutory accounts)

Example 2

UK entity - accounting period ended 30 June 2017. All amounts in £m. Sales to UK customers are booked in the UK company concerned.

Transfer pricing policy	Shared service centre services - net cost plus 7.5%	Sales and marketing activity - 2.25% return on sales	Contract research and development services - net cost plus 15%	Statutory profit and loss
Overseas related party	IP co B tax resident in Ruritania	Manufacturing co A tax resident in Elbonia	IP co B tax resident in Ruritania
Third party revenues	0	180	0	180
Cost of goods sold by source	0	(136)	0	(136)
Shared service by source	14	0	0	14
Contract research and development by source	0	0	9	9
Own operating expenses	(13)	(40)	(8)	(61)
Operating profit	1	4	1	6 (reconciles to total operating profit per UK statutory accounts)

Example 3

UK entity - accounting period ended 31 December 2015. All amounts in £m.

Transfer pricing policy	Shared service centre services - net cost plus 10%	Toll fee - net cost plus 10%	Sales and marketing activity - 5% return on sales	Contract research and development services - internal cost plus 25%	Regional sales and marketing services - internal cost plus 5% (a)	10% mark-up on third party purchases sourced through hub	Statutory profit and loss
Overseas related party	IP co B tax resident in Ruritania	Manufacturing co A tax resident in Elbonia	Manufacturing co A tax resident in Elbonia	IP co B tax resident in Ruritania	IP co B tax resident in Ruritania	Buying co C tax resident in Panau
Third party revenues	0	0	800	0	0	200	1,000
Tolling fee revenue by source	0	30	0	0	0	0	30
Shared service centre revenue by source	11	0	0	0	0	0	11
Cost of goods sold by source	0	0	(400)	0	0	(110)	(510)
Gross margin	11	30	400	0	0	90	531
Marketing recharge by source	0	0	0	0	80	0	80
Contract by research and development revenue by source	0	0	0	25	0	0	25
Own operating expenses	(10)	(27)	(360)	(20)	(76)	(90) (d)	(583)
Operating profit	1	3	40	5	4	(0)	53 (b)
Exceptional costs			(50) (c)	0			(50)

(a) Sales and marketing entities in Glovania and Svenborgia performing regional sales and marketing functions both received a return of cost plus 15% in the Disclosure Period. All relevant overseas entities performing similar activities to the UK entities other territories received the same reward as the UK entities.

(b) Reconciles to total operating profit per UK statutory accounts.

(c) Relates to sales staff reductions.

(d) Allocated pro-rata to cost of goods.