The UK government is thinking about changing its transfer pricing rules. The aim is to make these rules simpler and more in line with international guidelines.
Transfer Pricing Now
The UK tax office, also known as HMRC, is asking for opinions on how to change the transfer pricing rules in the UK. They want to make these rules clearer and more up-to-date. The discussion also includes other related tax issues. People can share their thoughts until August 14, 2023.
The rules for transfer pricing in the UK have mostly stayed the same since 1998. A lot has changed in the world since then, especially with new international guidelines. HMRC wants to know if it’s time for an update.
Key Points on Transfer Pricing
Making the Rules Easier to Understand
Right now, the rules are quite complex. HMRC is thinking about replacing them with a simpler test. This test would check if the pricing is fair between two related companies. But this might mean that companies have to keep more records to show they are following the new rules.
No Change Likely on One Issue
There’s been long-standing debate on whether to allow adjustments to go both ways in correcting pricing. For now, it seems the current approach will stay.
Changes to Loans Between Companies
HMRC wants to tweak the rules around loans between companies. The idea is to better match international guidelines that got an update in 2020. This is likely to be a welcome change.
Issues With Permanent Establishments
A Permanent Establishment (PE) is a fixed place where a company does business in another country. HMRC is considering two ways to make the rules clearer:
- Use the guidelines from international tax treaties directly in UK law.
- Use the latest international model and apply the relevant tax treaty.
However, there’s still confusion about how remote or hybrid work fits into these rules. More guidance is needed.
Other Tax Tools
Diverted Profits Tax (DPT) is another tool to fight against unfair tax avoidance. HMRC is considering two main changes:
- Include DPT in the main company tax rules but with a higher tax rate.
- Make the rules for DPT simpler and easier to understand.
Both of these changes would make things easier for companies.
Final Thoughts
Overall, HMRC’s proposed changes are a step in the right direction. They aim to make transfer pricing rules clearer and more in line with the rest of the world. But changing these rules is a big task and could be challenging. If you need any further support on how these changes affect your business, reach out to our team for some free advice!
