UK Transfer Pricing documentation: new compliance obligations under BEPS Action 13 

By Angelo Chirulli and Neeraj Nagarkatti 

HMRC has introduced one of the most significant changes in recent years to the UK’s transfer pricing regime. From accounting periods starting on or after 1 April 2023, multinational businesses must comply with the OECD’s BEPS Action 13 standards: preparing a master file, and a local file. HMRC has consulted on a Summary Audit Trail (SAT), but it has not been implemented. A proposed International Controlled Transaction Schedule (ICTS) which would expand reporting if enacted. 

Why the rules are changing 

Transfer pricing governs how connected companies set prices for cross-border transactions, such as goods, services or intangibles. Tax authorities are concerned that these arrangements can be used to shift profits into low-tax jurisdictions. BEPS Action 13 introduced a global three-tiered documentation approach—master file, local file and country-by-country report—to ensure transparency and comparability. 

Until now, UK taxpayers only had to maintain “sufficient records,” creating uncertainty and inconsistency. HMRC’s new requirements bring the UK in line with international best practice and give the tax authority greater visibility over value chains, profit allocation and transfer pricing risks. 

Master file and local file 

The master file provides a high-level overview of the group: organisational structure, global operations, intangibles and financing.
The local file covers the UK entity’s intercompany transactions in detail, supported by functional and economic analyses, and justification of transfer pricing methods. 

Together, these documents aim to demonstrate compliance with the arm’s length principle and make it easier for HMRC to assess risk. 

The summary audit trail (SAT) 

In addition, HMRC has consulted on a SAT—a short questionnaire outlining the steps taken to prepare the local file. This includes identifying transactions, analysing functions, assets and risks, and selecting comparables. While not a full narrative, the SAT helps HMRC quickly assess whether documentation is robust. 

Strict deadlines and penalties 

Currently applicable to UK entities in groups that meet the Country-by-Country Reporting threshold, taxpayers must be ready to provide the master and local files and submit them within 30 days of an HMRC request. The proposed SAT is potentially subject to similar deadlines if implemented. Unlike some other countries, which allow 60–90 days, the UK’s shorter deadline signals HMRC’s expectation that documentation should be prepared contemporaneously—finalised by the time the corporation tax return is filed. 

Failure to comply may trigger penalties, and HMRC may presume inaccuracies in tax returns are due to carelessness unless documentation proves otherwise. 

Proposed ICTS form 

HMRC is consulting on the International Controlled Transactions Schedule (ICTS), modelled on similar forms in Australia and New Zealand. The ICTS would require transaction-level data: type, value, counterparty, jurisdiction, methodology and profit level indicator. This would give HMRC powerful tools to cross-check data against the tax return and the local file, increasing the likelihood of targeted audits, including newly affected medium-sized enterprises. 

Ongoing compliance and reviews 

Transfer pricing documentation is not a one-off exercise. HMRC expects groups to: 

• Refresh master and local files annually to reflect new transactions, restructurings or market changes. 

• Update benchmarking studies regularly to ensure comparables remain reliable. 

• Integrate transfer pricing compliance into year-end processes rather than treat it as an afterthought. 

Who is affected? 

HMRC estimates around 3,500 businesses will fall within scope. However, the removal of the medium-sized business exemption in the ICTS proposals means many more companies may soon be affected. Compliance costs will depend on group size and complexity, but businesses should budget for systems upgrades, internal resources, and external benchmarking support. 

What businesses should do now 

Multinationals operating in the UK should act early to mitigate risk and avoid last-minute pressure: 

• Design a documentation strategy: build processes for master file, local file alongside annual accounts, while closely monitoring the SAT proposal. 

• Strengthen data systems: ensure systems capture intercompany transactions at a granular level and can support ICTS reporting. 

• Review transfer pricing positions: update functional analyses and benchmarking to ensure arm’s length compliance. 

• Monitor HMRC consultations: engage with industry bodies to keep up to date with ICTS developments. 

The UK’s alignment with BEPS Action 13 marks a new era for transfer pricing compliance. The master file, local file, combined with the proposed SAT and ICTS, will give HMRC greater visibility over multinational groups, with new taxpayers, including medium-sized enterprises, potentially facing increased scrutiny.  With only 30 days to respond to requests, businesses must embed transfer pricing governance into routine compliance. 

At gunnercooke, we help clients navigate these rules and design robust, practical strategies for managing transfer pricing risk.  

Unsure of how these changes may impact your business? Contact Angelo Chirulli and Neeraj Nagarkatti.