KPMG report: New UK transfer pricing guidance on allocation of risk in controlled transactions
HMRC’s guidance sets out its views on issues pertaining to the OECD Transfer Pricing Guidelines.
HM Revenue & Customs (HMRC) on 26 January 2024 published updated transfer pricing guidance (in their International Manual at INTM485025) on the analysis of risk allocation when delineating controlled transactions, and the consequences for pricing transactions in accordance with the arm’s length principle. Read TaxNewsFlash
HMRC’s guidance sets out its views on a number of contentious interpretative issues pertaining to the OECD Transfer Pricing Guidelines. Specifically, the guidance reinforces the importance of granular analysis of control of economically significant risks when designing and documenting transfer pricing policies for UK entities. When contractual risk allocation is respected under the accurately delineated transaction, the new guidance emphasizes that all contributions to control of economically significant risks need pricing and may participate in upside and downside outcomes arising from the playing out of the relevant risks. The guidance states that in cases where key risks are managed through highly integrated control activities, a profit split method may be appropriate.
Read a March 2024 report* prepared by the KPMG member firm in the United Kingdom that discusses the new HMRC guidance.
* This article appears in Tax Journal and is provided with permission.