HMRC has confirmed that from April 2023 large businesses will be required to maintain a master file and local file, with draft legislation expected to be published in the second half of 2022.
For many years HMRC has required Country-by-Country (CbC) reporting for all multinational enterprises (MNEs) with consolidated group revenue of at least €750 million, but until now has not included the OECD internationally recognised local and master file requirements.
Following a consultation started in 2021, HMRC has decided to legislate the requirement to prepare master and local files for businesses within the scope of CbC reporting rules. A summary audit trail requirement will also be introduced.
The standardised approach of the OECD consists of (i) a master file covering standardised information pertinent for all MNE group members and (ii) a local file referring specifically to material transactions of the local taxpayer. The summary audit trail will be a short, concise document summarising the work already undertaken by the taxpayer in arriving at the conclusions in its transfer pricing documentation.
The documentation will not need to be filed routinely but it should be prepared before filing the relevant corporation tax return (and reflected therein) and be available to the HMRC within 30 days of a request.
Impact on smaller businesses
If a MNE is below the threshold for the local and master file obligations, there remains a requirement to maintain a record of transfer pricing arrangements and suitable substantiation that the policies followed are arm’s length in nature.
The new master and local file requirements represent a further movement by HMRC to align with the OECD on both transfer pricing and tackling BEPS related issues through a more collaborative approach to assessing a MNE’s global taxation. Increased information sharing between tax authorities is placing greater emphasis on businesses to ensure that their transfer pricing policies are correct, consistent, and appropriately documented.
Groups of all sizes should therefore ensure that appropriate policies and documentation are in place.
How we can help
We have an experienced team of transfer pricing specialists who can provide pragmatic advice, tailored to your needs. This includes assistance in the preparation of these files and advise on the implementation of new policies and the assessment of existing policies.
If you would like to find out more, please get in touch with either:
Philip Newbold- firstname.lastname@example.org
Michael Beard- email@example.com
Ana Reyes Villaveces- firstname.lastname@example.org
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2022/23.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.