Transfer pricing definition updated to reflect OECD BEPS

HMRC has confirmed the definition of transfer pricing guidelines within UK legislation following changes to the OECD guidelines issued last year, which will affect businesses who are subject to the transfer pricing rules for the purposes of income tax or corporation tax

This measure amends the references within the relevant legislation to incorporate the most recent revisions to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which are the internationally agreed standard for application of the arm’s length principle for transfer pricing purposes. The government says this will reduce the potential for double taxation.

The OECD issued revised OECD Guidelines last July and the UK change is effective for accounting periods beginning on or after 1 April 2018 for corporation tax.

The revised OECD Guidelines essentially reflects a consolidation of the changes resulting from the joint OECD/G20 Base Erosion and Profit Shifting (BEPS) project based on the arm’s length principle. They incorporate the substantial revisions made in 2016 to reflect the clarifications and revisions agreed in the 2015 BEPS Reports on Actions 8-10 Aligning Transfer pricing Outcomes with Value Creation and on Action 13 Transfer Pricing Documentation and Country-by-Country Reporting.

It also includes the revised guidance on safe harbours approved in 2013 which recognises that properly designed safe harbours can help to relieve some compliance burdens and provide taxpayers with greater certainty.

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

HMRC Policy paper, Income and Corporation Tax: update to definition of transfer pricing guidelines issued 6 March 2018.

The legislation has been published at The Taxation (International and Other Provisions) Act 2010 Transfer Pricing Guidelines Designation Order 2018.

OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017, issued 10 July 2017.

Report by Sara White

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