Transfer Pricing for Multinational enterprises (MNEs)

Transfer pricing looks at setting a fair and consistent value for transactions between connected parties, using the internationally recognised arm’s length principle set by the Organisation for Economic Cooperation and Development (OECD). which seeks to determine what the price would have been if the transactions had been carried out under comparable conditions by independent parties. Currently the OECD guidelines are implemented by 36 member counties across the world.


In September 2014 the UK became the first country to formally commit to implementing the OECD’s model Country-by-Country (CbC) Reporting template. While the UK implemented the CbC minimum standards of reporting following a two phase approach in 2015 and 2016, it did not introduce specific requirements regarding a master file and local file. This was because the UK already had broad record keeping requirements, however, following research on the implementation of the rules. The absence of specific transfer pricing documentation requirements, and supporting guidance, created a degree of uncertainty for UK businesses over the appropriate transfer pricing records required, leading to inconsistency of approach.

Transfer Pricing Rules – What’s new?

For accounting periods beginning on or after 1 April 2023 new transfer pricing record keeping rules apply. This measure will primarily affect businesses operating in the UK, which are part of a large multinational enterprise group that have global revenues of €750 million or more. Those UK businesses that meet the threshold in a given accounting period are required to keep specific transfer pricing records as per the OECD Transfer Pricing Guidelines.

The guidelines as set out by the OECD being adopted by the UK in full under the standardised approach consists of (i) a master file containing standardised information relevant for all multinational enterprise (MNE) group members; (ii) a local file referring specifically to material transactions of the local taxpayer; and (iii) a country-by-country (CbC) report for the largest MNE groups containing aggregate data on the global allocation of income, profit, taxes paid and economic activity among the tax jurisdictions in which it operates.

What is the SME exemption

The SME exemption provides relief from following the transfer pricing legislation, provided the companies meet the staff headcount test and one of the following Turnover or Balance sheet limits:

 Maximum number of staffAnd less than one of the following limits
  Annual turnoverBalance sheet total
Small<50<€10 million<€10 million
Medium<250<€50 million<€43 million

While the UK has the SME exemption for transfer pricing these have gradually been eroded over the years following HMRCs spotlight on tax transparency and mismatch rules, including the profit fragmentation rules.

HMRC expects that SME’s should still following the arm’s length principles in respect of connected party transaction and can remove the SME exemption from any Medium sized entity.

Get in touch

For more information on transfer pricing and to find out more about your businesses reporting requirement under the regime, please get in touch with our tax experts.

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