Transfer Pricing in 2024: Balancing Compliance and Competitiveness in the UK Market

In today’s globalised economy, multinational enterprises (MNEs) operating in the UK marketplace face a complex balancing act: ensuring compliance with transfer pricing regulations while maintaining competitiveness. 2024 has seen some key developments in this area, and understanding these changes is crucial for UK businesses engaged in cross-border transactions.

Recent Developments in UK Transfer Pricing

• Expanded Documentation Requirements: Introduced in April 2023, these new rules require MNEs with a consolidated group revenue exceeding €750 million to prepare transfer pricing documentation following the OECD format. This documentation should detail the transactions between related parties, the chosen transfer pricing method, and the economic rationale behind it.
• Extended Statute of Limitations: HMRC, the UK tax authority, can now reassess transfer pricing arrangements for up to six years, compared to the previous three-year limit. This increased scrutiny emphasises the importance of robust transfer pricing policies and accurate record-keeping.
• Focus on Hard-to-Value Intangibles: The valuation of intangible assets like intellectual property (IP) plays a critical role in transfer pricing. With the extended statute of limitations, HMRC can revisit the valuation of these assets if there’s a significant discrepancy between forecasts and actual financial performance.

Balancing Compliance and Competitiveness

MNEs in the UK must navigate these developments while maintaining a competitive edge. Here are some strategies to achieve this balance:

• Conducting Thorough Transfer Pricing Analyses: A comprehensive analysis of transactions between related parties, considering factors like market data and comparable transactions, is essential. This analysis should support the chosen transfer pricing method and demonstrate arm’s-length pricing – the price that would be charged between unrelated parties.
• Seeking Advance Pricing Agreements (APAs): Obtaining an APA from HMRC provides greater certainty and reduces the risk of future disputes. An APA pre-agrees on the transfer pricing methodology for specific transactions, offering valuable peace of mind for businesses.
• Investing in Transfer Pricing Expertise: Building in-house expertise or collaborating with qualified UK transfer pricing advisors can ensure compliance and help identify potential areas for optimization.

Looking Ahead

The UK government is also considering further reforms to transfer pricing rules, aiming to simplify legislation and improve alignment with international tax treaties. These potential changes underscore the importance of staying informed and adaptable in the transfer pricing landscape.

Conclusion

Transfer pricing in 2024 presents both challenges and opportunities for UK businesses. By understanding the recent developments, implementing effective strategies, and seeking professional guidance when needed, MNEs can achieve compliance with UK regulations while maintaining competitiveness in the global market.