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In brief

Since 2015, the UK has adopted the minimum standard of required transfer pricing documentation articulated in BEPS Action 13 (“Guidance on Transfer Pricing Documentation and Country-by-Country Reporting”), namely Country-by-Country-Reporting (CbCR). In its latest consultation paper, HMRC have set out their intention to move away from the BEPS Action 13 minimum standard and to require taxpayers of large multinational enterprise groups (MNE groups) to prepare a master file and local files together with supplemental evidence logs.

HMRC have also set out a proposal for all UK taxpayers that fall under UK transfer pricing rules to submit an international dealings schedule (IDS) – a highly structured form to capture specific intragroup transactions and activities. If introduced, this would be a significant step change from current documentation requirements and one that will likely increase the compliance burden for many.

New UK transfer pricing documentation requirements

Under the minimum documentation standard set out in BEPS Action 13 adopted by the UK, only taxpayers in large MNE groups with consolidated revenues over Euro 750 million are required to submit a CbCR.

Other than those companies affected by the CbCR rules, the UK currently does not have specific transfer pricing documentation requirements. Taxpayers are generally obliged to keep documentation to demonstrate that they have taken reasonable care in preparing their tax returns, and this has historically applied to transfer pricing as well. There is a perception within HMRC that this is causing uncertainty in what is required or expected, and so the UK Government intends to introduce new legislation with specific rules and requirements. To address this uncertainty and to further align with the recommendations set out in Action 13, HMRC are proposing a mandatory requirement for those within CbCR groups to also submit a transfer pricing master file upon request and to keep (and produce on request) a local file.

The form and content of a master file and local file is set out in annexes to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017.

HMRC anticipate that the majority of MNE groups that are already required to submit CbC reports will also likely have prepared and / or have the information and resources to prepare master file and local file reports. As such, HMRC have set out the expectation that MNE groups must be in a position to provide these documents to HMRC within 30 days of being requested after the end of the relevant tax return filing date. Failure to do so will be considered in determining whether the taxpayer took reasonable care in the preparation of the tax return, thereby enhancing the risk of tax-geared penalties in the event of any transfer pricing related adjustments.

HMRC also intends to require taxpayers to supplement the master and local file requirement with two further transfer pricing documentation requirements: a supplemental evidence log and an IDS. These documents would go beyond the measures set out in BEPS Action 13.

Requirement to prepare a supplemental evidence log

HMRC have proposed requiring taxpayers to prepare a supplemental evidence log as an appendix to local file documentation which records the key evidence on which technical opinions are based. The separate evidence log is to help distinguish facts from technical analysis and interpretation of the facts, enabling HMRC and taxpayers to focus on substantive technical issues rather than spending significant time on fact finding in the event of transfer pricing audit or other intervention.

Reports submitted under the UK’s Profit Diversion Compliance Facility (PDCF) currently have to be accompanied by evidence logs which capture data and information on which technical analysis is based.  Such evidence may include financial data, notes from functional interviews and email reviews.  An example of an evidence log is provided in Annex B of HMRC’s PDCF guidance. In our experience, taxpayers find the preparation of an evidence log to be particularly burdensome.

Requirement to prepare an international dealings schedule

In a move that emphasises HMRC’s intent to become more data-led in their transfer pricing compliance and risk assessment processes, the consultation paper also has a dedicated section setting out proposals for requiring all taxpayers in scope of UK transfer pricing legislation to submit an IDS. If implemented, the requirement to submit an IDS would not be limited to large MNE groups already subject to CbCR. This means only small and medium enterprises are likely to be exempt from preparing an IDS.

The IDS will contain data on a company’s cross border transactions in a structured format such that it can be analysed by HMRC.  The suggested range of data which could be covered in an IDS is broad, including:

  • The nature and amount of specific types of transactions
  • Details of financial dealings
  • Compensation, receipts or payments of a non-financial nature
  • Information on restructuring activity
  • Information on the transfer pricing methodologies applied
  • Information on the level and type of supporting documentation for the transfer pricing methodology selected and applied
  • Counterparty details for transactions including identity and country location
  • Information on activities
  • Corporate group information (to enable entity level data to be combined and attributed to a particular MNE group)

Few countries have introduced such IDS requirements, with examples being AustraliaBelgium and Denmark.

Whilst the consultation paper sets out features to help limit the administrative burden on taxpayers (such as setting materiality thresholds on transactions needed to be reported), if introduced, we would expect that gathering the information required would still be a significant compliance burden for many.

In particular, HMRC acknowledge that many taxpayers’ systems may not be set up to provide such level of transactional data required and as such have invited comments from both UK taxpayers and advisors on how difficult an IDS requirement would be to comply with.

Providing comments to HMRC

HMRC are inviting comments from taxpayers on the proposed changes in UK transfer pricing documentation requirements set out in the consultation paper.

Many of the questions posed in the consultation paper centre around obtaining feedback on whether the proposals set out are proportionate to taxpayers’ businesses and around the level of expected administrative burden they would create. Please feel free to reach out to your regular contact to discuss the consultation paper in further detail.

The closing date for submissions in response to the consultation paper is 01 June 2021.


Patrick O'Gara is a partner in Baker McKenzie's Corporate Tax department in London.


Nigel Dolman works in Baker McKenzie UK's transfer pricing team in London and leads the valuations practice. He joined the Firm in 2009, having previously worked in Ernst & Young’s transfer pricing team for nearly 10 years where he led the team’s intellectual property practice. He has authored numerous publications and articles, focusing primarily on the transfer pricing of intangible assets and intercompany financing.


Wai-Hung Wan is a Senior Economist in Baker McKenzie London office.