INTM450100 - Transfer pricing records: local file
Where a UK entity has at least one material controlled transaction (see INTM450101 and INTM450104) and meets the MNE group test (see INTM450020), a relevant person is required to prepare a Local File in accordance with the 2022 Transfer Pricing Guidelines.
The Local File should supplement the Master File and provide details relating to specific intercompany transactions.
Paragraphs 5.22 to 5.23 of the 2022 Transfer Pricing Guidelines advise that the Local File should focus on information relevant to the transfer pricing analysis related to material controlled transactions taking place between a local entity and a related party based in a different jurisdiction. Details of UK to UK transactions also need to be included in the Local File in certain circumstances (see INTM450105).
Annex II to Chapter V of the 2022 Transfer Pricing Guidelines sets out the information to be included in the Local File and groups the information into 3 categories:
- local entity
- controlled transactions (see INTM450101)
- financial information
The level of detail required in the Local File to demonstrate that the results of transactions with related parties are determined for tax purposes according to transfer pricing rules will depend on the facts and circumstances of the controlled transactions. The information presented in the Local File must be proportionate to the complexity and materiality of the category (see INTM450102) of controlled transaction.
The Local File is an entity specific document and should be prepared on an entity-by-entity basis. However, an MNE group may prepare an amalgamated country specific Local File (a ‘UK Local File’).
The UK Local File must include all the information as set out in Annex II to Chapter V of the 2022 Transfer Pricing Guidelines for each UK entity that it covers. The UK Local File must be made available by the MNE group to the relevant persons to provide to HMRC upon request.
A relevant person that has relied on a UK Local File but is unable to provide a copy in response to an HMRC information notice will be treated as having failed to meet its duty to keep and preserve that record.
Where an MNE group has prepared a UK Local File that does not cover all UK entities that are within scope of the legislation, the relevant persons of those UK entities not detailed in the Local File must still produce their own 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 (see INTM450106), the relevant person is not required to prepare a Local File. If the relevant person is not required to keep and preserve a Local File, they are also not required to keep and preserve a Master File.