Transfer pricing documentation consultation: Simmons response

Simmons & Simmons has responded to HMRC's consultation on the introduction of more standardised transfer pricing documentation requirements in the UK. For more information on the consultation, see "Reform of UK transfer pricing documentation requirements".

In general, we welcome the intention to provide businesses and advisors with clarity on the transfer pricing documentation requirements in the UK to the extent that this will provide benefits to businesses. However, further design features through the use of de minimis thresholds and materiality levels should be considered. We believe this will enable the requirement to appropriately target MNE groups which have a substantial number, value or high risk nature of intragroup transactions relating to their UK operations, aligned to HMRC's risk-based approach.

We also consider that the UK transfer pricing documentation requirements could be aligned to the OECD Action 13 report whilst providing taxpayers with the discretion and flexibility to apply these as appropriate to the specific facts and circumstances of the MNE group (e.g. format as well as content including at an entity level, country level for the local file etc.)

However, requirements which go beyond and deviate from the OECD's Action 13 requirements such as an evidence log or additional information will significantly increase the compliance cost, resource and time burden for taxpayers disproportionately to any potential benefit envisaged. It is also  important to ensure additional costs relating to transfer pricing compliance and administration do not adversely affect the desire for the UK to become a competitive business location post-Brexit. Through information exchange and other tax legislation implemented in the last five years, HMRC already has access to an unprecedented level of information about businesses. We do not consider that taxpayers should be required to provide an excessive amount of information at the compliance stage where UK businesses are already required to fulfil their obligations under the self-assessment regime.

In particular, the administrative burden of the proposed international dealings schedule (IDS) will be significant for businesses. Instead of imposing more obligations, a clearer, well-functioning transfer pricing documentation system which provides quantitative and qualitative descriptions of an MNE group's transfer pricing policies would arguably be a more effective tool and displace the need for a potential IDS. If an IDS is pursued, we suggest it is restricted to limited quantitative data on intragroup transactions with the use of de minimis thresholds and exclusions to ensure it is a targeted, proportionate and relevant measure.