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Common HMRC compliance risks in transfer pricing

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

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:

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:

Some key themes and questions are:

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

authors:simon-taylor,authors:paul-minness