Income and Corporation Tax: Transfer Pricing Guidelines Definition Update

Who is likely to be affected

Businesses subject to transfer pricing rules for income tax or corporation tax purposes.

General description of the measure

The measure will update the definition of “transfer pricing guidelines” to incorporate the updated version of the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the ‘OECD Guidelines’) published by the OECD in July 2017.

Political objective

This measure amends the references in the relevant legislation to incorporate the most recent revisions of the OECD The Guidelines, which are the internationally recognized standard for applying the arm’s length principle for transfer pricing purposes.

This should provide some certainty for businesses and minimize the risk of double taxation.

Context of the measure

The OECD released an updated version of the OECD Guidelines July 10, 2017. The release primarily reflects a consolidation of changes resulting from the OECD/Erosion of the G20 Base and Transfer of Benefits (BEPS) project.

Detailed proposal

Effective date

The measure will apply to section 164(4) of the Taxes (International and Other Provisions) Act 2010 for corporation tax purposes in respect of accounting periods beginning on or after 1 April 2018 and for income tax purposes with respect to the 2018 to 2019 taxation year and subsequent taxation years.

Current law

The current law is Section 164(4) Taxes (International and Other Provisions) Act 2010.

Proposed revisions

The Treasury, in exercise of the powers conferred by Section 164(4)(b) of the Taxation (International and Other Provisions) Act 2010, makes the Order to amend the definition of ‘Guidelines in Transfer Pricing Matters” within Section 164(4)(a)) to refer to the updated version of OECD Guidelines published on July 10, 2017.

Summary of impacts

Impact on Treasury (£m)

2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021 2021 to 2022 2022 to 2023
nil nil nil nil nil nil

This measure should have no impact on the Treasury.

Economic impact

This measure should not have significant economic impacts.

Impact on individuals, households and families

There is no impact on individuals or households since this measure only affects businesses.

There is no impact on the formation, stability or breakdown of the family.

Equalities impacts

The measure should have no impact on equalities.

Impact on businesses, including civil society organizations

Updating the definition of transfer pricing guidelines will provide certainty for businesses and minimize the risk of double taxation. This measure should have a negligible impact on the administrative costs of companies. One-time costs include familiarization with new guidelines.

There should be no additional ongoing costs. This measure should have no impact on civil society organisations.

Operational impact (in millions of pounds sterling) (HM Revenue and Customs (HMRC) Or other)

There is no operational cost in terms of IT or resources for this change for HMRC but it can result in faster dispute resolutions.

Other impacts

Failure to update the legislative reference would potentially have a significant reputational impact and cast doubt on the UK’s commitment to OECD/G20 BEPS project in which she has been one of the main actors until now.

Monitoring and evaluation

The measure will be reviewed by contacting the taxpayer groups concerned.

Additional tips

If you have any questions about this change, please contact Jon Clark on phone: 03000 585708 or email: [email protected]

Statement

Mel Stride, MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.

Luisa D. Fuller