Draft Transfer Pricing, Permanent Establishment and Diverted Profits Tax Legislation
During 2023, the government opened a consultation to explore potential amendments to transfer pricing (TP), permanent establishment (PE), and Diverted Profits Tax (DPT) rules (2023 Consultation). This consultation led to a summary of responses being published by HMRC on 19 June 2023 (available here).
Taxpayers will be pleased to know that most of these proposed amendments are now presented as draft legislation, which aims to offer clearer rules and enhance tax certainty. However, certain aspects of the new changes broaden the scope of the legislation. For example, there is an expansion of the participation condition and the introduction of a new anti-avoidance provision, which may capture arrangements that were not previously covered by TP rules.
Consultation on Proposals Aimed at Transfer Pricing Scope and Documentation
Relatedly, the government has also opened a new consultation on TP that addresses two related proposals. The first proposal would expand the scope of UK TP rules by removing medium-sized business from the current exemption for small and medium enterprises (SMEs), thereby subjecting these businesses to the same TP regulation as larger entities. The second proposal would require multinationals in-scope of UK TP rules to report information on cross-border related party transactions to HMRC through the submission of an International Controlled Transactions Schedule (ICTS).
The consultations are now open and will run for 10 weeks until 7 July 2025. The government intends to include the new reforms to TP, PE and DPT legislation in the Finance Bill 2025-26 and has stated that the earliest operative date will be from 1 January 2026. The new TP consultation has no set timeline for implementation, and if changes are implemented, these will be considered for a future fiscal event.
Click here to read the full alert.
