This guidance, issued in several parts and published on 10 September 2024 aims to reduce uncertainty for businesses and covers 3 main areas:
- managing compliance risk;
- common compliance risks; and
- indicators of transfer pricing policy design risks
Some of the main takeaways for businesses are as follows:
- For the very large Euro 750m groups, there are already prescribed TP documentation rules. But quite importantly HMRC have now set out their expectations for businesses falling below this threshold (but above the SME threshold) that there should be the same care and attention applied in setting arm’s length pricing and producing contemporaneous documentation;
- HMRC have confirmed that transfer pricing is an “annual event”. The Functional Analysis should be checked and validated each year and they have provided examples of the sort of checks they would expect a business to undertake. HMRC also announced a guidance on analysing economically relevant risks (six-step process) in a transfer pricing documentation in January 2024. This latest guidance has re-emphasised the importance of in-depth risk analysis in the Functional Analysis; and
- HMRC have confirmed that benchmarking used in TP policies should be refreshed at least every 3 years.
Specific areas addressed include intangible assets, pricing for services and target margin models. Intra-group financing transactions are not covered but we would expect HMRC to release further guidance on this area.
Given this recent guidance, along with the releases in last two years, we expect HMRC to ramp up transfer pricing audits in foreseeable future.
At Menzies we have a specialist transfer pricing team who can deliver end to end transfer pricing services including policy design, functional analysis, benchmarking, documentation and dispute resolution. Please contact Saumyanil Deb or Emma McCartney to discuss your requirements further.
