BDO Global Tax Alert

Transfer pricing documentation changes introduced effective April 2023

08 February 2023

Changes to the transfer pricing documentation required by the UK tax authorities take effect for accounting periods beginning on or after 1 April 2023.

Who do the changes apply to?

These changes apply to all companies with group revenue exceeding consolidated group revenue of EUR 750 million in the period in question (the same revenue level as the country-by country report threshold).

What are the current rules?

Currently, the UK transfer pricing rules don’t explicitly require OECD local files and master files to be prepared to support a group’s transfer pricing, they only require that “sufficient documentation” be in place to demonstrate that a tax return is correct and complete. However, HMRC has stated that for companies with a material UK presence, they regard maintaining a local file and a master file to be a best practice.

What is changing?

UK law, for the first time, will mandate a standardised approach to transfer pricing documentation, making it a legal requirement for in-scope groups to maintain the following documentation:

  • A master file that sets out an overview of the group’s business, the nature of its global operations, its value drivers, its overall transfer pricing policies and its global allocation of income and economic activity. Ideally, this should include a detailed value chain analysis that considers how different parts of an international group work together to create value and defines the value created by each of those parts.
  • Local country files that incorporate details of material intragroup transactions for the local taxpayer for the year and supporting pricing analysis for each entity.
  • A country-by-country report for the largest multinational enterprise groups containing aggregate data on the global allocation of income, profit, taxes paid and economic activity among the tax jurisdictions in which it operates.

Summary Audit Trail delayed

Despite the fact that the government already held a consultation on transfer pricing documentation in 2020, and that draft legislation was released in 2022, the government has decided that more consultation is needed before an additional requirement -- the production of a Summary Audit Trail (SAT) -- is finally introduced. 

Although it is good news that this new record-keeping obligation will not be imposed just yet, it is still intended that some form of SAT will become part of standard UK transfer pricing documentation. Initially, it was envisaged that the SAT would sit alongside the UK local file and take the form of a short questionnaire (just two pages in the draft) that summarises the work undertaken by the taxpayer in reaching the conclusions set out in their local file. Whether it will be retained in this form and whether the government’s original proposal to introduce an ‘International Dealings Schedule’ will reappear remains to be seen. 

It is likely that the key theme behind the SAT – the desire that taxpayers certify that the necessary transfer pricing documentation has been prepared and kept continuously up to date to reflect changes in the business – will be retained, whatever form any new documentation requirements take.


The proposal to introduce a SAT, and the explicit requirement for a local file and a master file, are part of a broader signalling to taxpayers, and large businesses in particular, that they will likely be subject to increasing scrutiny, and higher expectations on how they support, document and implement their transfer pricing policies. This increasing focus and clarity over what is expected regarding operational transfer pricing may have the effect of lowering the threshold of what HMRC regards as constituting ‘carelessness’ for purposes of calculating both fixed penalties for deficient documentation and tax-geared penalties in the event of a transfer pricing adjustment on enquiry.

HMRC’s recent transfer pricing enquiry activities have resulted in the highest-ever tax yields,  increasing sharply to pass GBP 2 billion in 2020-2021 for the first time. Given the risk of tax-geared penalties, businesses that fall within the scope of these rules should consider undertaking a risk or gap analysis to ascertain how they will need to amend their compliance policies.

How BDO can help

Do you have transfer pricing documentation in the recommended OECD format and when was it last prepared? If you don’t, or if the documents have been overtaken by recent market events or organisational changes, we can help you bring things up to date to give you a robust defence in case of an HMRC enquiry.

Ken Almand