Companies that are members of multinational groups (“MNE”) with annual consolidated revenue of €750 million or more will be required to maintain transfer pricing records.
The records will be specified under a Regulation that has yet to be published but HMRC have already announced that it will require records that conform to those specified in the OECD requirements for Local and Master files. The draft Regulation contained an exception for transactions where both parties are subject to UK CT unless one of the parties carried on a ring fence trade. It is anticipated the draft rules will not be altered significantly in the final Regulation.
The Master File contains information on the MNE’s business. The main components are:
- sources of turnover,
- supply chains,
- intra-group service arrangements
- capabilities of individual locations of services in the group
- transfer pricing policies
- geographic markets of the MNE
- brief functional analysis of the value added by individual companies and their risks and assets
- details of strategies and operations linked to intangibles and R&D and the transfer pricing applied
- details of the financing of the MNE, identification of MNE companies with financing functions and the transfer pricing policies applied
- list of all unilateral advance pricing agreements
The Local File contains information on the particular company. The main components are:
- management structure, organisation and jurisdiction
- description of business and competitors
- connected party transactions- details of type, value, counterparties and jurisdictions
- Intercompany agreements
- comparability and functional analysis for each type of connected party transaction
- details of the transfer pricing analysis applied
- information on comparable third party transactions used in the transfer pricing analysis
- list of unilateral and bi-lateral advance pricing agreements affecting the connected party transactions
A penalty will be chargeable for a failure to maintain the records. Currently this is set at £3000.
Affected companies will need to bear in mind that HMRC will be able to request the documentation and there are penalty provisions for failing to comply.
CW Energy can assist affected companies in meeting these new obligations.