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Year in review
The main development in UK transfer pricing in 2023 was the introduction of formal transfer pricing documentation requirements, in the form of a master file and local file to be prepared by certain large businesses in accordance with the OECD Guidelines. Hitherto, there had been no specific documentary requirements apart from the general requirement to retain adequate records to support self-assessment tax returns. While the new rules apply only to the largest multinational groups, their scope could be extended to smaller groups in future.
Substantive changes to the transfer pricing legislation are also under consideration. In August 2023, the UK government issued a wide-ranging consultation on reforming the transfer pricing, permanent establishment and diverted profits tax (DPT) rules. The proposed changes aim to ensure that the application of the UK’s domestic rules is clear, and the outcome of their application remains consistent with the policy intention, international standards and the UK’s tax treaties. Most notably, it is proposed that the DPT rules will be transposed into the corporation tax code, while largely retaining their current structure. This would entail the abolition of DPT as a separate tax, and it would have the significant consequence that tax assessed under the transposed diverted profits regime should be treated as corporation tax for the purposes of applicable tax treaties (whereas DPT, in its current form, is not considered by HMRC to be a ‘covered tax’ for treaty purposes).11
This article first appeared on Lexology. You can find the original version here.
