The UK transfer pricing regime is principally contained in Part 4 of the Taxation (International and Other Provisions) Act 2010 (“TIOPA 2010”). The core rule is the arm’s length principle: where a provision between parties satisfying the statutory participation condition differs from the provision that would have been made between independent enterprises, and that difference gives rise to a UK tax advantage, for example by reducing UK taxable profits or increasing UK tax losses, UK taxable profits and losses are calculated by substituting the arm’s length provision for the actual provision.

The regime operates through the UK self-assessment system and is supported by HMRC’s administrative guidance, principally the HMRC International Manual. UK transfer pricing documentation requirements are also relevant. In particular, the Transfer Pricing Records Regulations 2023 require in-scope large multinational groups to maintain OECD-style Master File and Local File documentation and produce it to HMRC on request.

The UK regime is closely aligned with the OECD Transfer Pricing Guidelines (“OECD TPG”), which are expressly relevant to the interpretation of the UK rules in that TIOPA 2010 states that the domestic transfer pricing rules must be interpreted in a way that “best secures consistency” with the OECD TPG. The Finance Act 2026 amended the regime in several respects, including by introducing an exemption for certain UK-to-UK transactions, broadening aspects of the participation condition, and making targeted technical changes in areas such as financial transactions, guarantees and intangible fixed assets. These reforms generally apply for chargeable periods beginning on or after 1 January 2026.

The UK goes significantly further than many comparable jurisdictions in its treatment of the OECD TPG: rather than treating them as merely persuasive international guidance, the UK has directly incorporated the OECD TPG into domestic law by statute, making them a mandatory interpretative aid for construing the transfer pricing provisions in Part 4 of TIOPA 2010.

The central provision is contained in section 164 of TIOPA 2010 which provides that Part 4 of TIOPA 2010 is to be read in the way that best secures consistency between the effect given to specified UK transfer pricing provisions (including s.147, the basic transfer pricing rule) and the effect which, “in accordance with the transfer pricing guidelines,” is to be given to Article 9 of the OECD Model Tax Convention (“MTC”) where double taxation arrangements incorporate that model. The OECD TPG therefore operate as a central interpretative framework for the UK rules, rather than merely as informal background material.

HMRC guidance confirms that OECD principles are relevant to the interpretation of UK transfer pricing legislation, including where no double tax treaty is directly in point. In practice, the OECD TPG is relied upon across the main areas of transfer pricing analysis, including method selection, comparability analysis, arm’s length ranges, comparability adjustments, intangibles, intra-group services and financial transactions.

The OECD TPG do not override UK statute. They are applied through the UK legislative framework and remain subject to any specific UK statutory rules, reservations, declarations or elections. The better view is therefore that the OECD TPG are effectively incorporated as an interpretative standard, but not as a freestanding source of law.

UK transfer pricing law does not rely primarily on a simple “related party” label. Instead, it is built around the concept of “affected persons” who satisfy the “participation condition” — a legal construct set out in s. 148 of TIOPA 2010. Broadly, this condition is met where one party directly or indirectly participates in the management, control or capital of the other, or where the same person or persons directly or indirectly participate in the management, control or capital of both parties. Where the participation condition is met, the parties are treated as related for transfer pricing purposes and their transactions fall within the scope of the UK’s transfer pricing regime.

For these purposes, control is interpreted broadly and is not limited to majority share ownership. It can include voting power, rights under constitutional documents, rights or powers exercisable through connected persons, future rights and the practical ability to direct the affairs of a company (s. 1124 CTA 2010). The rules also contain attribution provisions and special rules for partnerships and joint ventures, including cases where a 40% participant may be treated as controlling a joint venture if another participant also holds at least 40% (HMRC INTM412060).

The result is that UK transfer pricing rules can apply to direct ownership, indirect ownership, common-control group structures, joint venture arrangements, contractual rights and certain financing arrangements. For financing arrangements, the participation condition may be met if the relevant participation exists within six months of the provision being made (HMRC INTM414210). From 2026, the rules have also been widened in certain respects, including for common management arrangements, anti-avoidance arrangements designed to prevent the participation condition being met, and cases where HMRC issues a transfer pricing notice.

UK transfer pricing rules are not limited to cross-border transactions. HMRC confirms that the rules in Part 4 of TIOPA 2010 can apply to both cross-border and UK-to-UK provisions where the basic pre-condition is met and no exemption applies.

For chargeable periods beginning on or after 1 January 2026, qualifying UK-to-UK provisions are generally exempt from transfer pricing rules, provided the relevant criteria are satisfied and no disqualifying condition applies. The exemption is designed to reduce compliance burdens for domestic transactions where there is no meaningful risk of a net UK tax loss.

The exemption is not absolute. It is limited to qualifying UK resident company transactions and may not apply, for example, where the parties are not both fully within the corporation tax net, are subject to different corporation tax rates, use different reference currencies, fall within excluded regimes, or where HMRC issues a transfer pricing notice (HMRC INTM414320).

Yes, the UK regime contains several exemptions and exclusions, but they are specific and should not be treated as general safe harbours. The main taxpayer exemption is for small and medium-sized enterprises (“SME”). SMEs are outside the UK transfer pricing rules for most transactions, and HMRC confirms that the SME exemption in section 166 TIOPA 2010 applies to the vast majority of SME transactions (HMRC INTM412070).

The SME exemption is not absolute. It may not apply where the transaction involves a party in a non-qualifying territory, where HMRC issues a transfer pricing notice to a medium-sized enterprise, or where the taxpayer elects out of the exemption (HMRC INTM412070). There is also a separate exemption for certain dormant companies, intended to prevent a dormant company losing that status merely because transfer pricing would otherwise impute income to it (TIOPA 2010, section 165).

From chargeable periods beginning on or after 1 January 2026, there is also a qualified exemption for many UK-to-UK provisions where the relevant conditions are met and there is no risk of UK tax loss. This domestic exemption is not automatic and does not apply to all UK-to-UK arrangements.

There is no general substantive exemption simply because a transaction is low value or below a materiality threshold. Materiality may affect documentation, reporting and HMRC risk assessment, but it does not by itself remove an in-scope transaction from the arm’s length principle. For specific transaction types, taxpayers may follow the OECD simplified approach for qualifying low-value-adding intra-group services, but this is a pricing and documentation simplification rather than a full exemption from transfer pricing rules (HMRC INTM440071).

The UK is generally aligned with OECD transfer pricing principles because section 164 TIOPA 2010 requires the UK rules to be interpreted consistently with Article 9 of the OECD MTC and the OECD TPG. However, UK local law and practice contain several important qualifications, so the regime is not simply a verbatim application of the OECD TPG. HMRC confirms that OECD principles are central to interpretation, but they operate through the UK statutory framework (HMRC INTM414120).

One of the most significant structural divergences from OECD principles is that the UK’s basic transfer pricing rule operates asymmetrically. Where the basic pre-condition is met and the actual provision gives a UK tax “potential advantage” to one affected person, that advantaged person’s profits and losses are recalculated as if arm’s length terms applied.

The OECD TPG contemplate bilateral arm’s length adjustments — that is, the transfer pricing rules should in principle be capable of both increasing and reducing taxable profits. In the UK, however, the legislation only permits an adjustment that increases taxable profits or reduces a tax loss. Where only one affected person is advantaged, the other affected person (the “disadvantaged person”) only obtains an arm’s length recalculation — a “compensating adjustment” — if it makes a formal claim under section 174 TIOPA 2010 and the related provisions.

The compensating adjustment is therefore not automatic and must be actively claimed, meaning the symmetrical correction that OECD principles assume will follow automatically from a primary adjustment requires a deliberate domestic legal step.

Other local law differences are scope-based exemptions and domestic statutory rules. These include, for example, the SME exemption, the dormant company exemption and, from 2026, the qualified exemption for many UK-to-UK provisions. These are UK statutory choices: they affect whether transfer pricing applies at all, even though the underlying arm’s length principle remains OECD-aligned.

The UK has also developed certain administrative practices that reflect its particular compliance environment. In recent years, HMRC has published increasingly detailed guidance on areas it considers to present elevated transfer pricing risk, including through Guidelines for Compliance 7 (“GfC7”), guidance on the control of risk framework, specific guidance relating to value chain analysis and offshore procurement hubs and guidance on the application of the interquartile range. While these publications do not alter the arm’s length principle itself, they provide insight into how HMRC applies OECD principles in practice and the areas most likely to attract scrutiny during enquiries.

Transfer pricing applies to a UK company’s liability to corporation tax as a matter of domestic legislation, through Part 4 of TIOPA.

UK domestic law does not prescribe a closed list of transfer pricing methods by statute. Instead, section 164(1) TIOPA 2010 requires Part 4 of TIOPA to be read “in such manner as best secures consistency” with Article 9 of the OECD MTC, by interpreting and applying domestic legislation “in accordance with the transfer pricing guidelines” – meaning the OECD TPG.

The practical consequence is that the OECD-recognised transfer pricing methods are imported into UK law by statutory reference, with the applicable version of the Guidelines determined by accounting period.

HMRC guidance refers to the five methods set out in the OECD TPG which are: the comparable uncontrolled price (“CUP”), resale price, cost plus, profit split, and transactional net margin methods. HMRC guidance also notes that the OECD TPG permit the use of methods other than those specifically described in the guidelines, provided they produce an arm’s length result and are more appropriate to the facts and circumstances of the case than any of the recognised OECD methods (HMRC INTM421010).

No. The UK does not have a hierarchy of transfer pricing methods. Instead, taxpayers must apply the method that provides the most reliable measure of an arm’s length result in the circumstances of the case. This reflects the OECD “most appropriate method” approach, which HMRC adopts.

The position is as set out in the OECD TPG, in that there is no formal distinction between the traditional methods and the profit-based methods and it is necessary to select the most appropriate method for the circumstances of the case. The CUP method is preferred if it is one of two or more equally reliable methods. Similarly, HMRC’s position is also that where comparable uncontrolled transactions can be found, such that the CUP method can be applied in a greater or equally reliable manner as other methods, CUP is the preferred method of applying the arm’s length principle.

Although one of the OECD methods will generally be the most appropriate method, methods other than those set out in the guidelines may also be used as set out above. In addition, as set out in HMRC’s guidance, while the OECD TPG do not require the application of more than one method, they acknowledge that considering the results of additional methods may assist in more accurately determining the arm’s length range.

There is no prescribed methodology in UK legislation for determining an arm’s length range or for constructing an interquartile range (“IQR”). Section 164 TIOPA 2010 requires that UK transfer pricing legislation be construed in a manner consistent with Article 9 of the OECD MTC. Accordingly, the applicable principles for constructing an arm’s length range in the UK are those set out in Chapter III, Section A of the OECD TPG (2022).

HMRC’s guidance (INTM484090 and INTM485120) confirms that neither UK legislation nor the OECD TPG requires an IQR to be used. The OECD TPG recommends use of the IQR where residual comparability defects remain and there is a sizeable number of observations. The range must first be built on reliable comparables and HMRC warns against using statistical tools to “rescue” a poorly constructed comparables set.

Where the tested party falls within the arm’s length range, no adjustment is made. Where it falls outside the arm’s length range, HMRC states a preference for an adjustment to the median, on the basis that this best mitigates the risk of unquantified comparability defects, which is broadly in line with the OECD TPG para. 3.62 (permitting median, mean or weighted averages as measures of central tendency).

Broadly aligned with the OECD TPG, HMRC’s guidance accepts that adjustments may be made to potential comparables to improve reliability, subject to operational limits (INTM485110 and OECD TPG 3.5). Adjustments cannot rescue fundamentally unsuitable comparables, should be kept as simple as possible, and are viewed with scepticism where they involve large numbers of detailed adjustments or complex multi-variable formulae (INTM485110). HMRC considers that any adjustment or series of adjustments that significantly alters the range is likely to be flawed and highlights that balance sheet-based adjustments should be treated with care as they are point-in-time snapshots that may not be representative of an entire period.

Neither Part 4 TIOPA 2010 nor the OECD TPG prescribes an exhaustive list of comparability adjustments or a required methodology for calculating them, but the governing principles are set out in Chapter III of the OECD TPG. Some of the more common adjustments that might be encountered are:

• Working capital adjustments – e.g., stock/cost of sales and trade debtors/sales.
• Costs relating to a particular function that is not carried out by some of the comparables or the tested party.

In addition, HMRC’s GfC7, Part 2 section 2.3.4, expressly identifies failure to consider appropriate comparability adjustments as a compliance risk.

Under the OECD TPG (2022), adjustments should be made only where they are expected to increase the reliability of the results (paragraph 3.50) and the improvement to comparability should be shown when proposing adjustments (paragraph 3.49).

The UK transfer pricing rules operate through the corporation tax self-assessment regime and require taxpayers to compute taxable profits and losses by reference to the arm’s length provision where the statutory conditions are met. However, the rules are asymmetric. HMRC describes the UK transfer pricing legislation as operating as a “one way street”: it applies to undo a UK tax advantage by increasing taxable profits or reducing allowable losses, but does not generally permit transfer pricing adjustments to be used to reduce taxable profits or increase losses for the taxpayer under scrutiny. Accordingly, year-end transfer pricing adjustments should be reflected in the corporation tax return where the actual provision gives rise to a UK tax advantage, but a downward adjustment is not available merely because the taxpayer’s reported result is above an arm’s length amount. Relief in the opposite direction is instead dealt with through the statutory compensating adjustment rules, where the relevant conditions are satisfied. The UK legislation therefore focuses on the correct tax computation under Part 4 TIOPA 2010, rather than prescribing a particular accounting mechanism for recording transfer pricing adjustments in the statutory accounts.

Where a transfer pricing adjustment increases the taxable profits of one party, the UK also provides for compensating adjustments in certain circumstances. Under sections 174 to 177 TIOPA 2010, a taxpayer adversely affected by a transfer pricing adjustment made to another party may claim a corresponding adjustment to prevent double taxation, provided the statutory conditions are met. The claim must generally be made within two years of the date on which the advantaged person files its return or is issued with the relevant HMRC notice reflecting the arm’s length position. Where an enquiry results in a transfer pricing adjustment after the disadvantaged party has already filed its return, that party may amend its return or otherwise claim the corresponding adjustment in accordance with the statutory procedure.

UK law does not provide for secondary adjustments following a transfer pricing adjustment. HMRC guidance acknowledges that other jurisdictions may do so and sets out the UK’s position where a foreign tax authority imposes a secondary adjustment on a transaction involving a UK party. Where the foreign authority deems a constructive loan, HMRC will consider claims to deduct imputed interest, subject to the arm’s length principle and the ordinary UK rules on interest deductibility. Where the foreign authority deems a distribution, the UK neither taxes the deemed distribution nor grants relief for foreign withholding tax suffered on it.

The UK does not have a separate transfer pricing regime for intangibles. The general transfer pricing rules in Part 4 TIOPA 2010 apply to controlled transactions involving intangibles in the same way as they apply to any other controlled transaction and is required to be construed consistently with Article 9 of the OECD MTC and the OECD TPG. The governing OECD framework for intangibles is Chapter VI of the 2022 OECD TPG (Special Considerations for Intangibles), and it applies to UK controlled transactions through section 164 TIOPA 2010.

The main sources of administrative guidance are:

• HMRC International Manual sections INTM440110 to INTM440180 provide operational guidance on intangibles. INTM440110 references Chapter VI of the OECD TPG directly and adopts its definition of an intangible. INTM440176 sets out HMRC’s approach to hard to value intangibles, reflecting the relevant provisions of Chapter VI of the OECD TPG.
• Legislative reform (Finance (No.2) Act 2026) introduces a single valuation standard for controlled transactions involving intangible fixed assets, applicable to transactions taking place on or after 1 January 2026.

The UK applies the DEMPE framework in a manner broadly consistent with the OECD TPG. Given that UK transfer pricing legislation is expressly required to be interpreted consistently with the OECD framework, entitlement to intangible-related returns is determined by reference to the functions performed, assets used and risks controlled in relation to the development, enhancement, maintenance, protection and exploitation of the relevant intangible, rather than by legal ownership alone.

In practice, HMRC places significant emphasis on identifying where the economically significant decision-making functions relating to intangibles are performed and which entities exercise control over the associated risks. Consistent with the OECD approach, an entity that merely holds legal title to an intangible will not necessarily be entitled to residual returns if it lacks the capability and authority to perform or control the relevant DEMPE functions. Conversely, HMRC will closely scrutinise arrangements where UK personnel perform key DEMPE or risk-control functions but the associated returns are allocated elsewhere in the group.

This focus has become increasingly evident in HMRC’s recent guidance. HMRC’s 2024 guidance on the control-of-risk framework and its subsequent GfC7 reflect a broader emphasis on aligning transfer pricing outcomes with value creation and ensuring that transfer pricing analyses accurately identify the contributions made by UK businesses. HMRC specifically identifies intangible asset ownership and exploitation as an area of heightened transfer pricing risk and expects taxpayers to support their positions with robust functional analysis and evidence.

More recently, HMRC has also placed greater emphasis on value chain analysis, encouraging taxpayers to consider how value is created across the multinational group and how the activities of individual entities contribute to that value creation. This is particularly relevant in intangible-rich business models, where HMRC expects transfer pricing documentation to explain not only the ownership of intellectual property, but also the location of the people functions and decision-makers that create and sustain its value.

Accordingly, HMRC’s approach is firmly grounded in OECD principles and increasingly focuses on the substance of value creation, the control of risk and the performance of DEMPE functions when determining entitlement to intangible-related returns.

See response to question 14.

The UK does not have domestic law or regulations dealing specifically with hard-to-value intangibles (“HTVI”). Instead, the applicable guidance is set out in INTM440176 and reflects the applicable OECD TPG provisions.

In line with the OECD approach, HMRC recognises that tax authorities may use ex post outcomes as presumptive evidence when assessing whether the assumptions and projections used by taxpayers on an ex ante basis were reasonable at the time the transaction was entered into. The purpose of this approach is to address the information asymmetry that often exists between taxpayers and tax authorities in transactions involving valuable intangibles. HMRC therefore accepts that actual outcomes may be relevant in testing the reliability of forecasts used to support the original transfer pricing analysis.

HMRC’s guidance adopts the OECD definition of an HTVI, namely an intangible for which no reliable comparables exist and where, at the time of the transaction, the projected future income streams or valuation assumptions are highly uncertain. Examples include early-stage intellectual property, intangibles that are not expected to generate returns for several years, novel technologies or business models, and certain intangibles developed through cost contribution arrangements.

Accordingly, while the UK does not have a separate domestic legislative regime specifically directed at HTVIs, HMRC’s guidance expressly incorporates the OECD HTVI approach. In practice, taxpayers transferring valuable or early-stage intangibles should ensure that contemporaneous valuation analyses and forecasting assumptions are robustly documented, as subsequent outcomes may be used by HMRC as evidence when evaluating the reliability of the original pricing.

For UK transfer pricing purposes, there is no standalone statutory regime governing Cost Contribution Arrangements (“CCAs”) equivalent to the detailed OECD guidance in Chapter VIII of the OECD TPG. Rather, CCAs are generally dealt with under the UK’s ordinary transfer pricing rules in Part 4 TIOPA 2010, which apply the arm’s length principle to controlled transactions. HMRC’s guidance expressly states that there is no difference in the approach for analysing transfer prices for CCAs and any other controlled transaction, and that the OECD Chapter VIII principles should be applied when evaluating a CCA.

Consistent with the OECD approach, participants must have a reasonable expectation of mutual benefit and must share contributions in proportion to the benefits they expect to derive from the arrangement. Each participant must obtain an economic interest in the assets, services or intangibles generated by the CCA and must bear an appropriate share of the associated risks. HMRC emphasises that participation in a CCA does not alter the application of the arm’s length principle; transactions conducted through a CCA are analysed under the same transfer pricing principles that apply to any other controlled transaction.

In practice, a key area of focus is whether a purported participant is genuinely entitled to participate in the arrangement. This requires consideration of the participant’s functions, capabilities, expected benefits and assumption of risk. In recent years, HMRC has challenged arrangements where it considered that a UK entity did not satisfy the requirements to be treated as a bona fide participant, particularly in relation to the development of intangible assets.

Recognising the uncertainty surrounding CCAs, HMRC introduced guidance in 2025 permitting taxpayers to seek Advance Pricing Agreements (“APA”) in relation to CCAs. These arrangements allow taxpayers to obtain advance certainty that HMRC will not challenge the validity of a UK entity’s participation in a development CCA. While these APA arrangements do not determine the arm’s length pricing of contributions, they can provide certainty regarding whether the UK entity is a valid participant for transfer pricing purposes.

Accordingly, while the UK does not have a separate legislative regime for CCAs, it expressly recognises them through its adoption of the OECD framework. To be respected, a CCA must demonstrate that participants expect to benefit from the arrangement, make contributions commensurate with those expected benefits, assume appropriate risks and satisfy the general arm’s length requirements that apply to all controlled transactions.

The UK has extensive powers to exchange information (“EOI”) with overseas tax authorities in the context of transfer pricing enquiries. EOI is a particularly important tool where information relevant to a transfer pricing audit is held by an overseas group company or is otherwise outside the possession or control of the UK taxpayer. HMRC’s guidance recognises that cross-border information exchange is an essential mechanism for administering and enforcing transfer pricing rules in multinational group contexts. However, HMRC’s practice is to seek information from the taxpayer directly, and to use its domestic information-gathering powers where appropriate, before resorting to formal EOI procedures.

The EOI between HMRC and foreign tax authorities takes place under several legal instruments, each of which governs both what may be exchanged and how the information received may be used. The principal legal bases for EOI relevant to transfer pricing are:

• Double Tax Conventions (“DTC”): Most UK DTCs contain an Article modelled on Article 26 of the OECD MTC, permitting the competent authorities to exchange information “foreseeably relevant” to the administration or enforcement of the domestic tax laws of the contracting states.
• Tax Information Exchange Agreements (“TIEA”): These are standalone agreements with territories that do not have a full DTC with the UK. Under a typical UK TIEA (such as the UK–Bahamas agreement), the competent authorities of the contracting parties shall exchange such information as is foreseeably relevant for carrying out the provisions of the agreement or to the administration or enforcement of the domestic laws concerning taxes covered by the agreement.

The ability to exchange information is subject to important limitations. A treaty partner is not generally required to provide information that is not obtainable under its own domestic laws or in the ordinary course of its tax administration. HMRC also notes that EOI requests can be time-consuming, particularly where the foreign authority must exercise its own statutory powers to obtain the requested information. Furthermore, all exchanged information remains subject to the confidentiality protections and procedural safeguards contained in the relevant treaty.

Country-by-Country (“CbC”) reports are exchanged automatically with the tax authorities of jurisdictions in which the group operates (HMRC IEIM300160).

Master file and local file reports are produced to HMRC on request as part of the taxpayer’s statutory records (HMRC INTM450010). There is no automatic cross-border exchange and any exchange with a foreign authority would occur only on request through the applicable treaty channels.

Under the BEPS Action 5 minimum standard, HMRC spontaneously exchanges summary information on defined categories of rulings with the tax authorities of relevant jurisdictions that have implemented the standard (HMRC IEIM510400).Where the relevant jurisdiction has not implemented the Action 5 framework, HMRC guidance provides that exchange should still be considered under an applicable international agreement if one exists (HMRC IEIM540300). Bilateral and multilateral APAs necessarily involve exchange of the APA with the treaty partner competent and other parties in accordance with HMRC’s exchange of information obligations (HMRC INTM422020).

As a general principle, information received through EOI may be relied upon in transfer pricing assessments and used as evidence in related litigation, subject to the confidentiality and permitted-use constraints set out in the relevant treaty or agreement.

Under a typical UK TIEA (such as the UK–Bahamas agreement), any information received shall be treated as confidential and may be disclosed only to persons or authorities (including courts and administrative bodies) in the jurisdiction of the contracting party concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the agreement, or the oversight of the above. Such persons or authorities shall use such information only for such purposes. Crucially, they may disclose the information in public court proceedings or in judicial decisions.

Under the EU administrative cooperation framework (Directive 2011/16/EU), which informed UK practice, information, reports, statements and any other documents, or certified true copies of or extracts from them, obtained by the assisting authority and transmitted to the requesting authority in accordance with the Directive may be invoked as evidence by the competent bodies of the receiving Member State on the same basis as similar information, reports, statements and any other documents provided by an authority of that Member State.

This means that, in principle, information properly obtained through EOI is treated for evidentiary purposes as equivalent to domestically gathered information: it can be used as evidence for a transfer pricing assessment and can be adduced in tribunal or court proceedings.

All entities within the scope of UK transfer pricing rules must keep the records necessary to prepare and deliver a correct and complete tax return. In a transfer pricing context, this means holding sufficient evidence that related-party transactions have been priced on arm’s length terms in the form described at HMRC INTM450010, unless an exemption applies (notably the SME exemption).

A significant recent development was the introduction of the Transfer Pricing Records Regulations 2023, which apply for corporation tax accounting periods beginning on or after 1 April 2023. Under these rules, UK entities that are members of a multinational enterprise (“MNE”) group with consolidated annual revenue of at least €750 million (the Country-by-Country Reporting “CbCR” threshold) must prepare and retain an OECD-compliant Master File and Local File. Both documents must be prepared in accordance with the 2022 OECD TPG, with the Master File providing a high-level overview of the group’s global business and transfer pricing policies, and the Local File containing detailed analysis of the material controlled transactions affecting the UK entity.

The UK also implements CbCR for large multinational groups. Broadly, groups with consolidated revenue of €750 million or more are required to file a CbC report containing information on the global allocation of income, taxes and economic activity across jurisdictions. The UK rules are aligned with the OECD BEPS Action 13 standards and facilitate the exchange of reports between tax authorities under international information-sharing arrangements.

The UK’s transfer pricing reporting obligations are expected to expand significantly with the introduction of the International Controlled Transactions Schedule (“ICTS”), which is expected to apply from accounting periods beginning on or after 1 January 2027. The ICTS will be a new filing requirement submitted alongside the corporation tax return and is expected to apply to businesses within the scope of the UK transfer pricing rules. Taxpayers will be required to provide HMRC with structured information on their material cross-border related-party transactions, enabling HMRC to undertake more sophisticated risk assessments and transaction-level data analysis. The introduction of the ICTS forms part of HMRC’s broader strategy to modernise tax administration, increase transparency and leverage data analytics to target transfer pricing enquiries more effectively.

All taxpayers within the scope of UK transfer pricing rules are required to maintain sufficient records that are necessary to prepare and deliver a correct and complete tax return. Where the entity has controlled transactions within Part 4 TIOPA 2010, this extends to holding sufficient evidence that related-party transactions have been priced on arm’s length terms, in the form described in INTM483030. The extent of the documentation required will depend on the size of the taxpayer and the nature and materiality of the transactions.

As described in question (20), the UK’s formal transfer pricing documentation requirements were significantly expanded by the Transfer Pricing Records Regulations 2023. For accounting periods beginning on or after 1 April 2023, UK entities that are members of a MNE group with consolidated annual revenue of at least €750 million must prepare and retain an OECD-compliant Master File and Local File in accordance with the 2022 OECD TPG. This threshold aligns with the UK’s CbCR regime, under which qualifying groups must also report information on the global allocation of income, taxes and economic activity.

Small enterprises are exempt from Part 4 TIOPA and from any associated documentation obligation, save that HMRC may issue a transfer pricing notice under s167A in specific circumstances. Medium-sized enterprises are also exempt in principle, but HMRC may issue a transfer pricing notice under s.168 requiring them to compute profits on an arm’s length basis, in which case the general record-keeping duty applies (s.166 and 168 TIOPA 2010). The exemption does not apply to transactions with persons resident in a non-qualifying territory, where a business has irrevocably elected to exclude the exemption, or where an SME is party to a transaction that is relevant to a patent box claim and HMRC issue a transfer pricing notice (HMRC INTM412070). An enterprise with no more than 50 employees and turnover or balance sheet total less than €10m will be considered small and an enterprise with no more than 250 employees and turnover less than €50m or balance sheet total no more than €43m will be considered medium (HMRC INTM412080).

HMRC’s guidance at INTM450050, reflecting Chapter V of the 2022 OECD TPG, states that the Local File should be finalised no later than the due date for filing the tax return for the period in question, and the Master File should be reviewed and updated by the return due date for the ultimate parent of the MNE group. However, there is no requirement for submitting the Local or the Master File by a deadline. Instead, the documentation will have to be provided based on a request from HMRC.

HMRC may issue a formal information notice under Schedule 36 FA 2008 at any time from the return filing date to require production of the specified records, without needing to demonstrate any reason to suspect an under-assessment, effectively resulting in a contemporaneous documentation requirement in practice (paragraph 21(8A) Sch 36 FA 2008).

Once requested, the specified transfer pricing records must be provided within the period stated in the information notice. HMRC’s guidance at INTM450050 confirms that 30 days will generally be regarded as a reasonable period (HMRC INTM450050).

The CbC report must be filed with HMRC within 12 months of the end of the reporting period to which it relates (HMRC IEIM300040).

The UK does not impose a standalone transfer pricing documentation penalty regime. Instead, penalties arise under the general tax administration framework where taxpayers fail to maintain adequate records, submit inaccurate returns, or are unable to support their transfer pricing positions when challenged by HMRC.

A penalty of up to £3,000 per failure may be charged for failure to keep or preserve adequate records in respect of a company tax return, including the specified TP records (HMRC INTM450070).

More significant consequences can arise where inadequate documentation contributes to an incorrect tax return. Under the UK’s general inaccuracy penalty regime, penalties apply where an inaccuracy results in an understatement of tax, an overstated loss, or an excessive repayment claim. Penalties are based on the taxpayer’s behaviour and may be up to 30% of the potential lost revenue for careless inaccuracies, 70% for deliberate inaccuracies, and 100% for deliberate and concealed inaccuracies. A taxpayer that discovers an error and fails to take reasonable steps to notify HMRC may also be treated as having acted carelessly. Penalties may be reduced where the taxpayer makes a prompt and complete disclosure, particularly where the disclosure is made voluntarily.

Where a return contains a transfer pricing-related inaccuracy and the specified TP records have not been kept, for businesses that meet the CbC threshold, a statutory presumption that the taxpayer’s behaviour was careless applies and may only be displaced by the taxpayer showing that reasonable care was taken (HMRC INTM450070). As a result, failure to maintain appropriate documentation can materially increase penalty exposure in addition to undermining the taxpayer’s ability to defend its transfer pricing position.

Non-compliance with a request for TP records from HMRC may result in an initial penalty of £300, together with daily penalties of up to £60 for continued non-compliance. Similar penalties apply where a taxpayer fails to comply with its CbC reporting obligations, including failures to file a CbC report, provide required notifications or furnish information requested by HMRC. In addition, penalties of up to £3,000 may be imposed where a CbC report contains inaccurate information (CC/FS59).

Maintaining the specified TP records also falls within the responsibilities of the Senior Accounting Officer (“SAO”) under Schedule 46 FA 2009, and a failure to keep the records may indicate inadequate tax accounting arrangements (HMRC INTM450070). Breach of the SAO duties can attract £5,000 penalties on the SAO personally and on the company (HMRC SAOG18400).

The UK does not currently require taxpayers to file a dedicated transfer pricing return or schedule as part of the corporation tax return. Instead, taxpayers within the scope of the UK transfer pricing rules must self-assess whether their related-party transactions comply with the arm’s length principle and, where necessary, reflect any transfer pricing adjustments in their tax returns. Taxpayers are also required to maintain sufficient records to support the positions adopted and to demonstrate that their returns are correct and complete.

In addition, certain taxpayers may be required to make disclosures under the UK’s Uncertain Tax Treatment regime. Broadly, large businesses must notify HMRC where a tax treatment is uncertain and meets the relevant statutory thresholds, including certain transfer pricing positions where there is a material uncertainty as to the correct tax outcome.

Looking ahead, the UK’s transfer pricing reporting obligations are expected to expand significantly with the introduction of the International Controlled Transactions Schedule (“ICTS”), which is expected to apply from 2027. The ICTS will be a new filing requirement accompanying the corporation tax return and is intended to require in-scope taxpayers to report prescribed information on material cross-border related-party transactions directly to HMRC. The measure forms part of HMRC’s broader strategy to enhance transparency, facilitate data-driven risk assessment and enable more targeted transfer pricing compliance activity.

Yes, APAs are available in the UK and the statutory basis for APAs is contained under Part 5 of TIOPA 2010 (sections 218 to 230). Part 5 establishes the UK’s APA regime and sets out the framework under which taxpayers and HMRC agree in advance the transfer pricing treatment of specified transactions, including the application process and the legal effect of the agreement (Part 5 TIOPA 2010).

HMRC International Manual (INTM422030) confirms that the UK APA programme accommodates unilateral, bilateral, and multilateral APAs (HMRC INTM422030).

Where cross-border transactions are involved and an applicable double tax treaty contains a mutual agreement procedure article, HMRC’s preference is generally for a bilateral APA (BAPA) agreed between HMRC and the relevant treaty partner. Bilateral APAs provide greater certainty because they establish a common transfer pricing outcome accepted by both jurisdictions and therefore help prevent double taxation.

The UK also supports multilateral APAs, although HMRC notes that there is no separate multilateral mechanism as such. In practice, these arrangements are achieved through multiple coordinated bilateral agreements with the relevant tax authorities.

The UK does not generally operate any formal transfer pricing safe harbour arrangements.

Instead, the UK transfer pricing rules are legislated to be interpreted consistently with Article 9 of the OECD MTC and the OECD TPG, allowing taxpayers to rely on OECD-recognised simplification measures where appropriate. This includes the simplified approach for low value-adding intra-group services, which HMRC generally accepts where the conditions set out in the OECD TPG are satisfied.

The UK provides a number of practical simplifications. Most notably, SMEs are generally exempt from the UK transfer pricing rules, subject to certain exceptions. In addition, from 1 January 2026, a broad exemption applies to many UK-to-UK transactions where there is no material risk of UK tax loss, reducing the compliance burden for wholly domestic arrangements.

Transfer pricing audits in the UK have become both more targeted and more data driven. Over the past two to three years, HMRC has issued a series of publications and introduced new compliance obligations that, taken together, articulate its expectations in significantly more detail than at any previous point.

This shift began to take clear shape with HMRC’s February 2024 guidance on the control of risk framework (INTM485020 onwards), which set out HMRC’s view on how the six-step process in Chapter I of the OECD TPG should be applied in practice. The guidance reinforced the importance of identifying key business risks and the entities that actually control them, with particular focus on arrangements in which UK-based senior decision-makers are allocated only routine returns despite performing control functions. This established a clear substantive lens through which HMRC intended to scrutinise multinational arrangements.

This was followed in September 2024 by GfC7 — Help with common risks in transfer pricing approaches, HMRC’s most detailed articulation to date of its compliance expectations. GfC7 sets out HMRC’s expectations of the role UK businesses should perform in managing TP compliance risk, highlights common risk indicators across scoping, functional analysis, comparability and calculations, and identifies higher-risk policy designs, including intangibles ownership and exploitation, above-market intra-group services, target-margin models and cost-based service rewards. Although not mandatory, GfC7 has become the de facto benchmark against which HMRC assesses TP risk, and its behavioural expectations are relevant to the exercise of six-year extended discovery assessments and penalties for non-arm’s length pricing. HMRC subsequently expanded GfC7 in December 2025 with new sections on value chain analysis and offshore procurement hubs, and supplemented it with GfC13, which addresses ensuring documents filed with HMRC are correct and complete. Case teams are already citing these guidelines when gathering evidence in live enquiries and Business Risk Review Plus settings, making them a practical audit tool as well as a compliance framework.

Running in parallel, the UK’s TP documentation regime has been formalised and standardised. For accounting periods beginning on or after 1 April 2023, in-scope UK businesses have been required to prepare OECD-standard Master File and Local File documentation and to produce it to HMRC on request, giving HMRC a consistent, structured evidence base at the outset of any enquiry.

Looking ahead, the ICTS, legislated for in Finance (No. 2) Bill 2024-26 and expected to apply from 1 January 2027, will require in-scope businesses to file structured transactional data on cross-border related-party dealings directly with HMRC. This is a decisive move from largely desk-based risk profiling to analytics-led case selection, and HMRC’s risk-profiling capability is expected to receive a significant boost from ICTS data and associated technology investment.

Taken together, these developments — the control of risk guidance, GfC7 (as extended) and GfC13, the Master File/Local File regime, and the forthcoming ICTS — form a coherent architecture through which HMRC is signalling both what it expects in terms of substantive TP positions and documentation, and how it intends to identify and pursue cases that fall short of those expectations. UK TP audits have not become more expansive in volume; they have become more targeted, more data driven, and more evidence-intensive. Taxpayers should expect that defence positions will require substantially stronger contemporaneous evidence and documentation than would have been considered adequate two to three years ago.

The UK’s transfer pricing legislative framework is well established and there has been a growing body of judicial consideration of transfer pricing issues in recent years. However, compared to some jurisdictions, domestic transfer pricing case law remains relatively limited and highly fact specific. As a result, while court decisions are important in shaping the interpretation of key principles, day-to-day transfer pricing practice continues to be influenced primarily by HMRC guidance, OECD materials and HMRC’s approach to compliance and enquiries.

Recent decisions have nevertheless provided useful guidance on areas of recurring controversy. For example, the Court of Appeal’s decision in BlackRock HoldCo 5 LLC v HMRC considered the application of the arm’s length principle to intra-group financing and the extent to which economically relevant characteristics of the actual transaction should be reflected in the hypothetical arm’s length scenario. The case reinforces the importance of aligning transfer pricing analyses with the commercial reality of the transaction rather than adopting an overly mechanical approach.

That said, the practical direction of transfer pricing compliance in the UK is currently being shaped more by HMRC’s published guidance than by new judicial authority. Over the last few years HMRC has released extensive materials, including its guidance on the OECD control of risk framework, GfC7 on common transfer pricing risks, subsequent guidance on value chain analysis and offshore procurement hubs, and GfC13 on ensuring documents filed with HMRC are correct and complete. These publications provide detailed insight into how HMRC identifies risk and evaluates transfer pricing positions, and have become essential reference points for taxpayers.

Therefore, in practice, transfer pricing outcomes are often driven by HMRC’s published expectations, risk assessment frameworks and increasing access to taxpayer data. As a result, taxpayers are placing at least as much emphasis on understanding HMRC’s guidance and compliance priorities as they are on developments in the case law.

HMRC’s recent publications provide a clear indication of the areas most likely to attract scrutiny. A recurring theme across HMRC’s control of risk guidance, GfC7 and the Transfer Pricing & Profit Diversion Compliance Facility guidance is a focus on whether profits are aligned with the location of economically significant decision-making, people functions and value creation. In practice, this has led to increased scrutiny of structures involving intellectual property ownership, DEMPE functions and the control of economically significant risks, particularly where UK-based personnel perform key decision-making functions but the associated returns accrue elsewhere.

HMRC has also identified several transfer pricing policy areas as presenting heightened risk. GfC7 specifically highlights intangible asset ownership and exploitation, above-market intra-group services, target-margin arrangements, cost-based and sales-based service remuneration models, franchise fee arrangements and offshore procurement hubs as areas that frequently warrant closer examination. These are not necessarily viewed as problematic per se, but HMRC considers them more susceptible to outcomes that do not accurately reflect the facts and circumstances of the UK business.

Looking ahead, the development most likely to reshape transfer pricing practice in the UK is not a substantive change to the arm’s length principle itself, but HMRC’s transition towards a more digital, data-driven and intelligence-led compliance model. This direction is evident across HMRC’s recent policy initiatives discussed above, and the broader HMRC Transformation Roadmap published in 2025. The common theme is greater transparency, more standardised information gathering and increased use of data to identify and assess transfer pricing risk.