UK Transfer Pricing Rules 2023: New mandatory documentation requirements

What are the new requirements?
In December 2022 the UK government published the draft secondary legislation for comment (The Transfer Pricing Records Regulations 2023) which requires the largest multinational businesses operating in the UK to maintain a Master File and a Local File in the prescribed and standardised format as set out in the Organisation for Economic Co-operation and Development (“OECD”) transfer pricing guidelines plus an additional requirement unique to the UK in the form of a supporting Summary Audit Trail (“SAT”).

The requirements are part of a four-tiered approach to transfer pricing documentation:

  1. Master File (*new requirement*) – containing standardised information relevant for all MNE group members
  2. Local File (*new requirement*) – referring specifically to material transactions of the local taxpayer
  3. CbCR (*existing requirement*)– containing aggregate data on the global allocation of income, profit, taxes paid and economic activity among the jurisdictions in which it operates
  4. SAT (*incoming requirement*) – it is anticipated that it will involve the completion of a questionnaire providing evidence of the information used when preparing the Local File and Master File, in addition to providing further details on how TP policies were implemented.

Who does this affect?

The new requirement applies to UK businesses that are a part of multinational groups with annual consolidated revenue exceeding €750 million. This threshold is aligned with the one imposed for a CbCR’ group.

For Groups falling below this threshold but above the SME one, the UK government notes that the OECD format is still considered best practice and is recommended for all business that are required to apply transfer pricing in the UK.


The legislation is effective for accounting periods beginning on or after 1 April 2023.

The UK Local File and Master File will not be required to be submitted to HMRC with the tax return however, they must be maintained and made available to HMRC within 30 days upon request.


Where qualifying MNEs fail to maintain the UK Local File and Master File or to produce the files on request, there will be a presumption of carelessness (maximum penalty of 30% of potential lost revenue). This will apply in addition to the standard fixed fee penalty of £3,000 for failure to keep or produce transfer pricing documentation.

The government suggests these penalties can only be displaced if the documents are produced when requested and the underlying transfer pricing information had been prepared in advance of filing the Corporate Tax return.

How to get ready

To ensure compliance with the new requirements and avoid penalties, awareness and planning are key. As a priority, we recommended that large groups undertake a thorough gap analyses of their business’ existing transfer pricing documentation, to identify any misalignments with the new requirements in the UK and alignment between the current transfer pricing model and the commercial operational model.

Particular focus should be given to being able to substantiate the functional analysis section of the files, the intercompany transactions entered into and the particular contributions to risk management and value creation. The quality of the functional analysis is stressed in HMRC’s current approach to transfer pricing enquiries and is a significant factor in HMRC rationale for launching their Profit Diversion Compliance Facility (“PDCF”).

Consideration should also be given to:

  • Whether the Group has access to the financial information required to prepare the UK Local File or where to obtain the transactional data
  •  Whether the Group has sufficient evidence to support the pricing of intercompany transactions are “arm’s length”, i.e. has benchmarking been performed to support the controlled transactions and is the data up to date
  •  If the Group is not headquartered in the UK, does the UK entity have access to the Group Master File and has this been prepared in line with the OECD standard format
  • Has the functional analysis been performed or refreshed recently in the UK – HMRC are likely to place particular focus on how the local fact finding was validated

For those businesses impacted by the upcoming changes, compliance with the new rules may require significant attention and resource. We suggest that this is considered ‘sooner rather than later’, and in time to complete an effective gap analysis.   

If you would like to learn more about the new transfer pricing requirements in the UK, and what this means for you, please get in touch with a member of our team.