On 10 September, HMRC released its latest Guidelines for Compliance (GfC7), which focuses on:

• Common transfer pricing compliance risks.
• HMRC’s view of the best practice principles and processes in relation to those risks.

HMRC’s aim is to explain its views in these areas, reducing uncertainty for large businesses and helping them to avoid non-compliance.

GfC7 does not replace the existing legislative framework that governs transfer pricing in the UK. However, it does provide useful supplementary guidance regarding HMRC’s views in key areas. These areas are of broad relevance for corporates within the scope of the UK’s transfer pricing rules.

Who is the GfC7 aimed at?

The guidelines are relevant to all businesses subject to the UK’s transfer pricing rules. They are intended to help businesses meet their statutory obligations to maintain the necessary records for the submission of correct and complete UK corporation tax returns in relation to transfer pricing.

GfC7 has several parts:

• Part 1 is primarily directed to UK risk leads (senior finance, risk and tax roles within the business).
• Parts 2 and 3 address the role of transfer pricing specialists (both in-house and external advisers).
• Annex A considers supporting records and information.

The focus is on best practice steps to achieve and evidence a compliant position. HMRC anticipates that this will help taxpayers achieve a reduced risk of enquiry and penalties, and a reduced frequency and materiality of errors.

HMRC accepts that the processes any specific taxpayer adopts will reflect several factors, including the complexity of its transfer pricing arrangements and the level of transfer pricing risk involved.

What are the key focus areas?

GfC7 has wide-reaching coverage and considers the following issues: considering issues such as:

• How UK risk leads manage their transfer pricing compliance.
• Common compliance risks encountered by HMRC.
• Indicators of transfer pricing policy design risk.
• Examples of helpful supporting records and information, with a specific note on the value of real-time evidence.

Some key themes and questions are:

• The need to focus on facts and circumstances relevant to the UK business. Analysis performed elsewhere in the group can be leveraged, but it needs to be developed in a way that fully reflects all relevant facts relating to the UK.
• Is compliance timely? This considers both whether key actions related to transfer pricing are undertaken in advance of the year-end being closed, and the frequency with which the transfer pricing policies themselves may need to be re-evaluated and updated.
• The quality of analysis, with deeper support expected for riskier areas.
• How a business ensures policies are correctly implemented and monitored.

HMRC also recommends that businesses prepare and retain a supporting information file, which is intended to be a clear and well-referenced record of all key documentation underpinning its UK transfer pricing position. A supporting information file of the type outlined by HMRC has several similarities with the previously proposed Summary Audit Trail (SAT) requirement. There may be significant overlap in some areas if a similar SAT requirement were to come into force in the future.

What do businesses impacted by GfC7 need to do?

While these guidelines do not change the legislation applicable to businesses, they provide a useful picture of HMRC’s best practice expectations for transfer pricing compliance activities. Businesses should also consider the implications for their wider statutory obligations, including, for larger taxpayers, their main duties under the UK’s Senior Accounting Officer regime.

The publication of GfC7 provides businesses with an opportunity to test and evaluate their current approaches to transfer pricing compliance, with particular focus on the timeliness and completeness with which the facts and circumstances of the UK business are considered and documented. Businesses whose processes and procedures reflect HMRC’s expectations, taking into account their inherent transfer pricing risks and complexities, should be best-placed to manage the risks of adjustments or penalties in the event of a subsequent HMRC enquiry.

If you would like to discuss this matter in greater detail, please reach out to Simon Taylor, Paul Minness or your usual RSM contact