UK transfer pricing documentation

New master file, local file and summary audit trail requirements


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On 30 November 2021, HMRC published a ‘Summary of Responses’ in respect of the March 2021 consultation on transfer pricing documentation. The consultation explored whether businesses with a UK presence should be required to:

  • Maintain, and produce upon request, master file and local file documentation, including an evidence log; and
  • Prepare and file an international dealings schedule

Deloitte Comments

The government has confirmed it will require businesses to prepare a master file and local file in line with the OECD’s BEPS Action 13 requirements published in 2015. For many groups this will not be a significant change, but it brings UK transfer pricing documentation in line with the OECD standard. UK-UK transactions will not need to be included, unless there is a ‘material UK tax risk’. New UK legislation will require the files to be prepared, but only submitted to HMRC on request.

In addition, HMRC will require a new ‘summary audit trail’ which will be a ‘short, concise document’ setting out the work that the business has undertaken in arriving at the conclusions in the local file/master file documentation. The twin objectives of the SAT are (i) to increase transparency over how a business has conducted its transfer pricing analysis in order to encourage compliance, and (ii) to allow HMRC to assess the level of assurance the documentation provides so as to focus enquiries on higher risk areas. Businesses will be pleased that this option has been selected in favour of the onerous ‘Evidence Log’ approach that was considered in the consultation document, more suited to investigations than transfer pricing documentation.

Businesses will also be relieved to see that the government is not planning on introducing an ‘international dealings schedule’ requirement at this time, although this will be kept under review. The experience of the use of such detailed schedules by other countries has been that they are costly for businesses, and the benefits to tax authorities have not been clearly articulated. There are also questions about whether such schedules should be coordinated internationally by the OECD Inclusive Framework to reduce the additional costs that arise from unilateral local requirements, how they will fit with proposed international tax changes under the Pillar One and Pillar Two project and how to ‘digitise’ the information so that the schedule can be used efficiently.

Further consultation on the master file and local file and summary audit trail requirements will be held in 2022, with the requirements expected to apply from April 2023, giving businesses adequate time to prepare. HMRC has also committed to providing guidance to help businesses, within the framework set by the OECD Transfer Pricing Guidelines.

Master file and local file

The government intends to introduce a requirement for businesses to maintain, and provide on request, master file and local file documentation. The requirement will apply to groups subject to country-by-country reporting requirements e.g. multinationals with annual turnover of €750 million or more.

HMRC will consider how best to assist businesses preparing UK local file documentation for the first time, including updating guidance.

The government intends to closely align the requirements and guidance to the OECD standard, in line with the preference of businesses responding to the consultation. HMRC will consider how to reduce the compliance burden of obtaining detailed transactional data e.g. focusing on material transactions and allowing appropriate aggregation.

Evidence log and summary audit trail (SAT)

The consultation considered the introduction of an ‘evidence log’ as part of the local file to set out key facts and evidence upon which technical opinions are based. A number of concerns were raised by businesses, including whether it would have been proportionate for a wide range of transactions and the potential for duplication of information. The government acknowledges that the existing use of evidence logs as part of the Profit Diversion Compliance Facility is focused on specific high-risk transactions, rather than routine compliance documentation. In response to these concerns, an evidence log requirement will not be introduced.

Instead, a short summary audit trail will be required to outline the work undertaken by the business in arriving at transfer pricing conclusions.

Provision of documentation to HMRC on request

On request by HMRC, businesses will have 30 calendar days to provide their master file and local file documentation, including the summary audit trail.

De minimis thresholds

Businesses suggested thresholds to filter out low-risk transactions and to focus on material transactions. The government acknowledges the need for thresholds, and intends to align with the OECD standards, including the focus on material transactions. Guidance will be published to help businesses determine what might be considered material, including practical examples and key principles. UK-UK transactions will not need to be included in the master and local files, unless there is a ‘material UK tax risk’.

If a business has self-assessed all its transactions as not material it will be expected to keep a record of the analysis undertaken to provide to HMRC within 30 days on request.

International dealings schedule (IDS)

The consultation considered the introduction of an ‘international dealings schedule’ to report transactional data in a structured format that HMRC could analyse as part of a risk assessment. Businesses were concerned about the costs and compliance burden compared with the benefits. Significant time and investment would in particular be needed to automate reporting processes. The requirement might also have had the effect of redirecting resource away from the analysis of complex transfer pricing issues.

The government will not implement, or consult further on, an international dealings schedule. This will be kept under review, but the government considers it essential that any future requirement would not create a disproportionate compliance burden for businesses.

Next steps

Draft legislation on the introduction of master file and local file documentation, including a summary audit trail, will be published in 2022 along with a further consultation.

The new documentation requirements will take effect from April 2023.