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There’s a New Government in Town — Should We Expect a Shake-Up of Transfer Pricing Regulations?

Summer has arrived in the UK (allegedly) — and so has a new government as Keir Starmer returns the Labour Party to power after 14 years. This raises the question: will the winds of change shake up transfer pricing regulations?


Hopefully not. Businesses have faced huge uncertainty in recent years, so some stability would be welcome instead of further disruptions.


It’s early days, though, and we’ll have to wait and see what the new government has planned once they get their feet under the table and the legislative agenda is laid out. However, early indications suggest that not much will change when it comes to transfer pricing. Let’s review the situation in more detail.

 

The Current Landscape of Transfer Pricing Regulations

 

Transfer pricing regulations, which govern the prices charged between related entities within multinational corporations, aim to ensure fair taxation and compliance with international tax standards. They aim to prevent profit shifting and ensure that corporations pay a minimum amount of tax, regardless of where they operate.


The Organisation for Economic Co-operation and Development (OECD) has been at the forefront of global tax reform, particularly with its Base Erosion and Profit Shifting (BEPS) initiative.


In a recent article, we discussed the latest changes under this framework regarding Pillar I and Pillar II reporting, which aim to address the challenges of the digital economy and establish a global minimum tax rate, respectively.


Public and privately owned multinationals with consolidated revenues of more than €750 million (approximately $827 million) will be subject to Pillar Two reporting and will need to pay at least 15% tax on any revenue generated in low-tax jurisdictions.


We’re in a transition period at the moment, during which companies are identifying their compliance data requirements and developing strategies for aggregating it. 

 

Labour's Stance on International Taxation

 

With the new government in power, early indications suggest a commitment to continuing the momentum of global tax reform. Moreover, Labour has expressed support for implementing Pillars I and II, so we may see no major changes regarding transfer pricing in particular. However, there is speculation that double taxation rules may be revised to ensure the fair taxation of cross-border activities. What other changes could be on the horizon? 

 

Stricter Compliance and Anti-Avoidance Protocols

Labour often stresses the importance of addressing tax avoidance and evasion. As such, it has been suggested that they may impose stricter regulations and compliance mechanisms. Multinationals operating in the UK may therefore face increased scrutiny and will need to revisit their compliance frameworks. It’s also possible that this increased scrutiny will apply to the international activities of companies based in the UK.


The Labour Party has previously mentioned plans to employ an additional 5,000 workers to investigate tax avoidance, so this may come as no surprise. The intention here is to reduce the tax gap (£39.8 billion for 2022/2023). However, the focus will also be on small businesses, which are responsible for around 60% of that figure.

 

Stricter CFC Rules

Another possibility is that controlled foreign company (CFC) rules may change. These rules disincentivize companies from generating income in regions with lower tax rates and, therefore, help prevent profit shifting. We’ll also keep our eyes peeled for changes regarding foreign tax credit.

 

Beyond Transfer Pricing

Labour has also confirmed that corporate tax will remain at 25% between now and 2029, but it could change “if tax changes in other countries pose a risk to UK competitiveness,” as reported by KPMG. Other things the Party says will remain unchanged include capital allowances, full expensing rules, and the main rate of VAT.

 

What’s Next?

 

Companies should continue to align their intercompany accounting practises with OECD guidelines on transfer pricing. This may involve strengthening compliance mechanisms, which will help if further scrutiny is introduced. Otherwise, we will have to await further guidance and see what happens when the Autumn Budget is announced, which is expected to feature updates on tax policy.

 

How IC Accounting Software Supports Transfer Pricing Compliance

 

So, with change potentially afoot, multinationals should be questioning how they can best place themselves to anticipate and adapt to that change. Intercompany automation software not only removes human error and delays in the process but also significantly enhances a company's ability to manage transfer pricing compliance. Let’s look at how.

 

Flexibility

When change comes, being able to quickly and confidently reconfigure your system is paramount. Bespoke applications, manual processes, and workarounds appear attractive options at the outset but really suffer when the rules change. Dedicated SaaS software, on the other hand, provides a configurable platform on which business rules sit, and it can grow and scale over time.

 

Providing Evidence

The direction of change in recent years has been towards requiring greater detail behind transfer pricing processes, and, if new government introduces change, we should expect that trend to continue. Virtual Trader works at the transaction level and retains all the detail behind every transaction; allowing you to evidence, report, and analyze this detail as well as the final numbers.

 

Centralized Data

Aggregating compliance data is a major challenge for multinationals. With separate ERPs often used, gathering all that data is a huge burden. Intercompany solutions such as Virtual Trader take all your intercompany transaction data and centralize it in one place, vastly minimizing the burden.

 

Standardized Rules and Reporting

Automating intercompany processes helps ensure that transfer pricing policies are applied consistently across all related entities, reducing the risk of discrepancies and errors.


Centralization also ensures reporting is accurate, streamlined, and standardized across subsidiaries. It enhances transparency and accountability across the board and provides a clear audit trail.

 

Compliant Invoicing

Virtual Trader offers invoicing for intercompany transactions, which can be customized depending on different international requirements (e.g., AP voucher numbering, indirect tax details, gapless invoice number sequencing).

 

Conclusion

 

With a new government in the UK, multinationals may be concerned about potential changes in transfer pricing regulations. While early indications suggest that little is likely to change, companies must stay vigilant and be prepared for any policy shifts.


Strengthening compliance mechanisms and leveraging technology are important steps to take, regardless of whether any changes come about. Intercompany software is key — not only does it reduce the extensive workload that comes with reporting and compliance but it also ensures that, if the rules do change, your business can quickly change with them.

 

To inquire or book a demo, contact us today.

 

 



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