Beware of the taxman if you do not have transfer pricing documentation

By Les Secular

Too many companies do not have adequate transfer pricing documentation and face potential penalties. Below, Les Secular argues that as tax officers receive more training on transfer pricing, and more businesses seek to expand their activities overseas, companies should be prepared.

I make no apologies for harping on yet again about transfer pricing documentation as there are still too many companies that do not have adequate transfer pricing documentation and whom face potential penalties.

Although documentation does not have to be filed with the UK tax authorities with the corporation tax return, HMRC can ask to receive a copy of such documentation within 30 days. Failure to supply it can lead to penalties – first a flat fee of £3,000 per annum if there is no supporting documentation and, secondly, an adjustment based penalty if the documentation is found to be inadequate.

The flat fee penalty is levied per company per return. The adjustment based penalty is 10% of the adjustment irrespective of whether tax arises or not. These penalties are in addition to the “normal ” tax penalties if there is an error on a tax return that leads to additional tax payments.

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