Navigating common risks in transfer pricing approaches: Insights from HMRC's GfC7 Webinars

The objective of these webinars was to provide practical guidance, based on the publication of the GfC7 on 10 September 2024, including best practice approaches to transfer pricing to mitigate risk and avoid common mistakes.

The webinars cover key topics we encounter when working with HMRC on transfer pricing enquiries. Two important points are the need for clear UK input and functional interviews for the UK Local File and the strong focus on providing solid evidence to support what is included in the transfer pricing documentation report.

This guidance is intended for:

• UK businesses (interestingly, it was noted that even if businesses such as Small and Medium Enterprises are exempt, they must be able to demonstrate an arm’s length return in cross-border transactions)
• UK transfer pricing risk leads (a new requirement) within the business and
• Transfer pricing specialists and advisors.

In addition to restating and emphasising the key points of the original publication, a few additional interesting points were also mentioned. It was noted that HMRC intends to use the GfC7 as a practical tool for the following areas:

• Assessing the level of risk, as well as flagging areas for particular attention
• Level of documentation and evidence
• Getting an estimate of materiality and proportionality
• Case work for the HMRC inspectors
• Annual business risk review conversations / a means of discussing risk and mitigation.

Finally, HMRC’s Customer Compliance Managers (“CCMs”) have been briefed on the GfC7. HMRC anticipates that the GfC7 will be used in annual conversations e.g., when discussing transfer pricing risks and controls. The CCM can help identify who in the business is the ‘UK Risk Lead’. – which was discussed in detail and it was noted that this does not have to be a newly created position within the business. Ideally, it would be a UK employee from tax or finance, who understands the transfer pricing matters within the company.

HMRC have also noted that they would also review whether R&D claims and transfer pricing documentation are consistent. Therefore, ensuring consistency between what is documented in a transfer pricing report and what the client submits in an R&D claim is a high priority.

Speak with our transfer pricing specialists

Please contact our transfer pricing specialists about the implications of the GfC7 and how it can affect your business. Even if you fall within the Small and Medium Enterprise category, it is becoming increasingly important, from an HMRC perspective, to ensure that an arm’s length return is achieved in all cross-border transactions.

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