INTM433020 - Part 4 TIOPA 2010: Self Assessment obligations: Record keeping: the general duty and transfer pricing

Introduction

This section provides guidance about records in respect of transfer pricing. General rules are laid down in statute, and the application of those rules to transfer pricing is a matter of interpretation. In interpreting those rules for transfer pricing purposes, HMRC will be guided by Chapter V of the OECD Transfer Pricing Guidelines. This is designed to assist tax administrations in developing their approaches to documentation rules, and taxpayers in identifying the records that would be helpful in demonstrating how their computations satisfy the arm's length principle

A company (or other enterprise) that makes a tax return that takes account of transactions to which transfer pricing rules apply must therefore meet the general rules.

General duty in relation to records

General rules about the records apply to an enterprise that is required to make a tax return for a period. These are contained in FA98/SCH18/PARA21 and TMA70/S12B, which spell out the SA record-keeping obligations.

The records kept must be sufficient to enable the taxpayer to deliver a correct and complete return and the records must be preserved until the latest of:

1. six years from the end of the period concerned;
2. the date on which any enquiry into the return is completed; or
3. the date on which HMRC are no longer able to open an enquiry.

If a notice to deliver a tax return is issued more than six years after the end of the period, any records still in the possession of the company must be preserved until the later of (b) or (c) above.

The records to be kept and preserved include:

1. records of all receipts and expenses in the course of the company’s activities;
2. records of all sales and purchases made in the course of any trade involving dealing in goods; and
3. supporting documents relating to items in (a) and (b) such as accounts, books, deeds, contracts, vouchers and receipts.

The obligation to preserve records may be satisfied by preserving the information contained within them, as described in FA98/SCH18/PARA22.

Transfer pricing

When an enterprise makes a tax return, it needs to apply transfer pricing rules to certain transactions which are taken into account in making the return. Those are largely transactions falling within the scope of TIOPA10/Part 4, broadly transactions between related enterprises.

Where transfer pricing rules apply, transactions are treated for tax purposes as if they were between independent enterprises (the arm’s length principle). The rules for the application of TIOPA10/Part 4 require that the legislation should be applied in a way that best secures consistency with principles set out by the OECD in Article 9 of the Model Tax Convention on Income and on Capital, and in the OECD Transfer Pricing Guidelines (advice on using the guidelines starts at INTM463000).

The next page gives specific advice on transfer pricing documentation.