Transfer pricing documentation requirements in the United Kingdom

1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

Yes. Under general record-keeping obligations imposed by Corporation Tax Self Assessment, records must be kept as may be needed to enable a taxpayer to deliver correct and complete tax returns within 12 months of the relevant year end, including any adjustments to their commercial profits that arise where the provision between two connected persons differs from an ‘arm’s length’ provision, and profits used to calculate UK tax are reduced, or losses increased, as a result of that provision.

UK transfer pricing legislation provides for certain exemptions for enterprises that are defined under EU rules as small and medium sized. Where the enterprise is part of a group or association, the limits apply to that group. The criteria, tested on the basis of the whole consolidated group, are:

Small Enterprise

Medium Enterprise

Maximum number of staff



And less than one of the following limits:

Annual turnover 
Balance sheet total

EUR 10 million 
EUR 10 million

EUR 50 million 
EUR 43 million

If the UK company is within a group that qualifies as small, it is exempt from the need to apply and document arm‘s length prices in respect of transactions with related parties in countries with which the UK has a double tax treaty with an appropriate non-discrimination article.

If the UK company is within a group that qualifies as medium sized, the UK company need not apply arm‘s length transfer pricing unless it is dealing with related parties in territories without a qualifying double tax treaty (as for ‘small’ groups above). However HMRC can subsequently require a medium sized group to apply arm‘s length transfer pricing to any of its related party transactions during a given chargeable period.

2. What is the content of the documentation that must be prepared?

UK guidelines follow principles set out in the OECD guidelines.

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

Any provision between ‘connected persons’. The definition of ‘provision’ is broad, and represents a transaction or series of transactions including arrangements, understandings and mutual practices whether or not they are, or are intended to be, legally enforceable.

b) What is the definition of “associated enterprises” for the purposes of this requirement?

‘Connected persons’ are where one party controls the other, or where parties are under common control, with control generally meaning the power to secure by the means of holding of shares or the possession of voting or other powers that the affairs of a company are conducted in accordance with the wishes of the person tested. With effect from 1 April 2004 a 40% participant in a joint venture is also deemed to control that joint venture, a joint venture for these purposes being a company or partnership which is controlled by two persons, each of whom has at least a 40% interest in the venture.

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

HMRC will accept documentation prepared in accordance with EUTPD guidelines. It is recommended that taxpayers who intend to explicitly follow the EUTPD Code of Conduct in relation to local documentation advise HMRC of this in writing.

d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?

Yes, to the extent that the foreign taxpayer is a counterparty to a transaction involving a UK legal entity, information relating to the foreign taxpayer may be requested from the UK party to substantiate the pricing of that transaction for UK tax purposes.

e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

Sometimes, if UK data is unavailable / limited.

f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?


3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?

There are no specified deadlines for provision of transfer pricing documentation. Taxpayers should maintain records of transactions and adjustments for a given period prior to the filing date of the relevant tax return; general information powers under Corporation Tax Self Assessment require that the taxpayer provides evidence that pricing of transactions is at arm’s length usually within 30 days from the date of request by the tax authorities.

Penalties may be raised
If an incorrect return is made and a business has been careless or negligent in establishing the arm’s length basis for the return; or.
If a business does not maintain the appropriate documentation necessary to demonstrate that it has made its returns on the basis that the terms of connected party transactions were considered to be on arm’s length terms.

These penalties fall within general provisions relating to incorrect corporation tax returns, namely that a transfer pricing adjustment may lead to a maximum 100% penalty based on potential tax lost, the rate of the penalty being dependent on the behaviour giving rise to the understatement: penalties are up to 30% for negligence or carelessness, up to 70% for deliberate inaccuracies, and up to 100% for a deliberate inaccuracies aggravated by concealment.

5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?

No. There are no specific UK documentation rules relating to transfer pricing, these fall under Corporation Tax Self Assessment regulations as outlined above.


Nick Foster-Taylor