Consultation outcome

Transfer pricing scope and documentation — Summary of responses

Updated 26 November 2025

Introduction

Transfer pricing is a means of pricing transactions between connected parties, based on the internationally recognised arm’s length principle. The arm’s length principle seeks to determine what the price would have been if the transactions had been carried out under comparable conditions by independent parties.

The UK transfer pricing legislation is contained within Part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA). The international consensus on applying the arm’s length principle is set out in the Organisation for Economic Cooperation and Development Transfer Pricing Guidelines (TPG) 2022. UK transfer pricing legislation is interpreted in accordance with the TPG.

The government published a consultation on transfer pricing scope and documentation on 28 April 2025, which sought views on 2 related proposals. Both are designed to protect the UK tax base against cross-border profit diversion by multinational enterprises and align the UK more closely with international peers. The consultation closed on 7 July 2025.

The first proposal was to amend the current exemption from transfer pricing for small and medium-sized enterprises (SMEs). In particular, to bring medium-sized enterprises into scope of transfer pricing. The second proposal was to require multinationals to report information on cross-border related party transactions to HMRC through an International Controlled Transactions Schedule (ICTS).

As part of a modern Industrial Strategy, the government is backing firms to start, scale, and stay in the UK. In line with this, the government has decided that SMEs will continue to benefit from the existing exemption from transfer pricing. Avoiding imposing additional administrative burdens on SMEs at this time, the government will continue to monitor the tax at risk and keep all tax policy under review.

Primary legislation for the ICTS will be included in Finance Bill 2025 to 2026. Changes are expected to take effect for accounting periods beginning on or after 1 January 2027. The ICTS sits alongside the government’s proposal to reform UK law in relation to transfer pricing, permanent establishment, and Diverted Profits Tax. Transfer pricing reform includes the general repeal of the requirement to apply transfer pricing to UK-to-UK transactions. This easement is expected to meaningfully reduce the administrative burden on enterprises that are not exempt from transfer pricing.

Executive summary

The first consultation proposal was to amend the current exemption from transfer pricing for SMEs, to better define and defend the UK tax base.

The consultation sought views on the removal of the medium-sized enterprise exemption. The exemption for small enterprises would be maintained. The government also proposed several possible changes to the exemption to ensure that it is fit for purpose, clear, and easy to apply.

The second consultation proposal was to introduce a requirement for multinationals to report information on cross-border related party transactions to HMRC through an ICTS.

Information provided on an ICTS would be highly valuable to HMRC in facilitating automated, data-led risk assessment and more accurate identification of transfer pricing risk. It would also be expected to increase compliance efficiency by promoting accurate filing and reducing the length of transfer pricing enquiries. Taxpayers would benefit from shorter, better targeted enquiries from HMRC that are focused on higher-risk cases from a transfer pricing perspective.

The consultation sought views on the introduction of a requirement to file an ICTS and the proposed scope and content of the draft reporting requirement.

The government is grateful to all those who responded to the consultation. Respondents provided a variety of detailed and constructive feedback. The government has considered the responses and concluded that it will proceed to implement the ICTS. For the reasons given in the introduction, the government has decided that SMEs will continue to benefit from the existing exemption from transfer pricing. The government will continue to monitor the tax at risk and keep all tax policy under review.

This document sets out the proposed next steps in detail. In summary, the government will include primary legislation relating to the ICTS in Finance Bill 2025 to 2026. A technical consultation on draft secondary legislation will be held in Spring 2026. These changes are expected to take effect for accounting periods beginning on or after 1 January 2027.

Summary of responses

This document sets out a summary of responses received in respect of the consultation.

The government held 3 public meetings involving over 150 people and received 31 written responses from businesses, representative bodies, and agents. The government appreciates the useful and constructive comments received, with many respondents providing detailed feedback on the policy proposals. The responses have helped HMRC to understand respondents’ views and concerns.

The views of respondents have been summarised in this document. They will be used to inform the further development of these proposals.

Amendments to the exemption for small and medium-sized enterprises

Question 1: The government welcomes views on the proposal to maintain an exemption from transfer pricing for small enterprises.

The vast majority of respondents supported the proposal to maintain an exemption from the UK transfer pricing rules for small enterprises. Contributors viewed the exemption as a vital policy that balances the need for tax revenue with the imperative to foster entrepreneurship and economic growth.

Numerous responses suggested that imposing transfer pricing compliance on small enterprises could create a disproportionate administrative and financial burden given their limited cross-border activity, resources, and tax risk.

Many respondents argued that smaller enterprises typically lack in-house expertise to maintain transfer pricing documentation and would need to rely on costly external advice. In general, the exemption was viewed as a pragmatic measure that supports the UK’s growth agenda, encourages international expansion, and avoids stifling innovation.

Some respondents acknowledged the rarity of such exemptions globally, but maintained the UK approach is proportionate, given existing safeguards to address abusive tax practices. Overall, the feedback overwhelmingly supported maintaining the exemption as a means to reduce regulatory burden and promote a thriving small business sector.

Government response

The government has decided that small enterprises will continue to benefit from the existing exemption from transfer pricing.

Question 2: The government welcomes views on the proposal to continue to define small enterprises by reference to turnover, balance sheet total, and staff headcount. Views are also invited on whether alternative metrics or approaches would be preferable.

There was broad support for the continued use of metrics based on turnover, balance sheet total, and staff headcount. Respondents set out that these metrics are well-understood, objective, and aligned with both UK and international standards. They were considered to offer a balanced and practical framework that accommodates diverse business models.

A small number of respondents noted that a headcount metric may be of declining relevance in digitalised business models. Some respondents also highlighted the potential for refinement of the existing metrics, including adjusting thresholds for inflation or applying those thresholds only to the UK resident entities of a multinational group.

Most respondents cautioned against introducing alternative or transaction-based metrics as it was felt this could increase complexity and compliance burdens without significant tax benefit.

A small number of responses suggested a future review of additional tests, particularly with a view to addressing inflationary increases in threshold levels. Overall, the feedback strongly favoured continuity of the current approach, emphasising that it provides fairness, administrative simplicity, and consistency across regulatory regimes.

Government response

The government is grateful for respondents confirming that the metrics are widely regarded as well-understood, objective and aligned with both UK and international standards.

The government will continue to keep the suitability of these metrics under review as the tax landscape evolves.

Question 3: The government welcomes views on the proposed amendment of the small enterprise threshold from €10 million turnover and balance sheet total to £10 million turnover and balance sheet total.

All respondents expressed strong support for the proposal to express exemption thresholds in GBP rather than Euros. Respondents consistently described this as a logical simplification, aligning with the functional currency of most UK businesses and reducing uncertainty caused by exchange rate fluctuations. The change was seen as especially beneficial for small enterprises and for marginal medium-sized businesses that may now fall below the threshold.

However, a significant number of responses proposed an increase in the relevant threshold levels, with some specifically suggesting turnover figures of between £10 million and £20 million, with £15 million most commonly referenced.

Additionally, a number of responses noted that there has been no inflationary adjustment to the €10 million threshold since it was introduced in 2003. Therefore, it is lower than comparable thresholds used in other areas of UK law (such as the Companies Act 2006). It was argued that a higher threshold would improve consistency across UK legislation and simplify compliance for businesses already familiar with those definitions.

There was broad agreement that the headcount threshold should remain unchanged.

A few responses raised the need for guidance on currency conversion methods and reviews of the threshold to ensure it remains appropriate over time. Some also cautioned against introducing transaction-level thresholds for exemption eligibility, suggesting these are better suited to documentation and enquiry guidance rather than exemption criteria.

Overall, the feedback from respondents was strongly supportive of a currency change. There was substantial support for raising the thresholds to reflect economic realities and reduce unnecessary compliance burdens for smaller enterprises.

Government response

The government is grateful for the feedback received. The government does not propose to make any changes to the definition at present and will continue to review respondents’ comments, with a view to addressing these in any future proposals.

Question 4: The government welcomes views on the proposal to only change the status of a small enterprise where the threshold is exceeded in 2 consecutive periods.

Respondents strongly supported the proposal to require that a small enterprise exceed the thresholds in 2 consecutive periods before losing exemption. Respondents consistently described this as a sensible, fair, and stabilising approach that would reduce volatility in compliance obligations and provide businesses with increased certainty.

A small number of respondents suggested a 3-year test would offer even greater protection for businesses with irregular growth patterns, such as startups. However, a 2-year approach was widely accepted as reasonable.

Respondents also emphasised the importance of clarity in any ensuing legislation and guidance, particularly around:

• when the transfer pricing rules would begin to apply (for example, would this be from the start of the third period)
• the point at which the exemption can be regained after it has initially ceased to apply
• how the rule would apply in cases of mergers, acquisitions, or disposals

Some respondents noted that this approach would align better with other areas of tax law (such as R&D relief) and reduce unnecessary administrative burdens. A few suggested that a ‘smoothing’ mechanism or safe harbour could be of further assistance.

Overall, the feedback was strongly positive, with a 2 consecutive-period rule seen as a pragmatic and proportionate approach.

Government response

The government notes respondents’ support for a 2 consecutive-period approach.

Question 5: The government welcomes views on the proposal to remove the exemption for medium-sized enterprises from transfer pricing.

Respondents expressed a wide range of views on the proposal to remove the exemption for medium-sized enterprises from the UK’s transfer pricing rules. Some respondents supported the proposal and others raised concerns about its proportionality, timing, and potential impact on competitiveness and compliance burdens.

Many respondents offered suggestions for mitigating the impact of the proposed change, with most stating that they understood the basis on which change was being considered.

Several respondents supported the removal of the exemption. These stakeholders considered that the exemption creates inconsistencies in the application of transfer pricing rules and contributes to an uneven playing field. They noted that:

• many medium-sized enterprises already operate internationally and are subject to transfer pricing rules in other jurisdictions
• the exemption may result in UK entities being excluded from group-wide transfer pricing documentation, leading to aggressive or inconsistent transfer pricing positions
• removal of the exemption would align the UK with international norms, as the vast majority of peer jurisdictions do not offer exemptions of this type
• the change would encourage the adoption of coherent transfer pricing policies and reduce the risk of double taxation

These respondents generally viewed the proposal as a reform that would ultimately ensure consistency and fairness in the UK’s transfer pricing regime.

In contrast, several respondents opposed the removal of the exemption. Key concerns included:

• compliance burden: many respondents highlighted the disproportionate compliance costs that would arise for medium-sized enterprises, particularly those towards the smaller end
• several noted that transfer pricing documentation can be expensive and resource-intensive to compile
• competitiveness: respondents expressed concern that removing the exemption could undermine the UK’s attractiveness as a location for medium-sized businesses
• administrative capacity: a couple of respondents questioned HMRC’s ability to manage the anticipated increase in transfer pricing documentation and enquiries
• limited tax risk: a number of respondents argued that most medium-sized enterprises do not pose a significant transfer pricing risk
• they felt that existing rules (such as CFC and profit fragmentation) already provide sufficient safeguards against profit diversion

Several respondents also noted that many medium-sized enterprises primarily engage in UK-to-UK transactions, which are proposed to be broadly excluded from transfer pricing rules.

A clear majority of respondents, including those broadly supportive of reform, proposed measures to mitigate the impact of removing the exemption. These included:

• time to prepare: many respondents emphasised that businesses would need time to prepare for the changes, suggesting lead-in times of at least 2 years until impacted returns had to be filed
• safe harbours: several respondents suggested transaction value-based carve-outs (such as £1 million or £5 million thresholds) to exclude lower-value transactions from transfer pricing documentation requirements
• simplified documentation: respondents proposed shorter-form reports, reduced de minimis thresholds, and safe harbour rates for routine services and financing arrangements
• targeted disclosure: some respondents suggested a simplified version of the ICTS as an alternative to full transfer pricing documentation, others proposed increasing the thresholds for disclosure
• clear guidance: many respondents requested clearer HMRC guidance on documentation expectations for medium-sized enterprises, particularly those near the upper end of the medium threshold

Views diverged on whether the UK is an outlier in offering an exemption for medium-sized enterprises. While most respondents agreed with the government’s assessment, some noted EU jurisdictions (such as Ireland and France) that maintain transactional threshold exemptions or lighter documentation requirements for SMEs. These respondents argued that the UK should adopt a more nuanced, risk-based approach rather than removing the exemption for medium-sized businesses.

A couple of respondents expressed concern about HMRC’s ability to manage the increased volume of transfer pricing documentation and enquiries. They noted that:

• many medium-sized enterprises would require support from HMRC to understand and apply the rules
• the risk of non-deliberate errors would increase, potentially leading to more disputes and longer resolution times
• some existing HMRC guidance on documentation lacks specificity and may require further clarification, particularly for businesses unfamiliar with transfer pricing rules

A small minority of respondents proposed alternative models to balance compliance burden and tax risk. These included:

• transaction-based thresholds: allowing businesses to assess whether they fall within scope based on the value of cross-border transactions *selective application of transfer pricing: using transfer pricing notices under existing powers based on risk indicators rather than applying transfer pricing universally
• downward adjustments: allowing unilateral downward transfer pricing adjustments to correct operational errors, similar to US rules, and to reduce double taxation risks

There was strong support for transitional arrangements, simplified compliance measures, and clear guidance to support businesses.

Government response

As indicated in the introduction, the government has decided that medium-sized enterprises will continue to benefit from the existing exemption. The government will not make any changes to the exemption at present. The government will continue to monitor the tax at risk and keep all tax policy under review.

Question 6: The government welcomes views on proposals relating to exceptions to the SME exemption, including whether the non-qualifying territory exception should be reviewed.

Question 7: The government welcomes suggestions of alternatives to the non-qualifying territory exception, and comments on the potential alternative approaches outlined in this document.

The majority of respondents supported retaining the non-qualifying territory exception, viewing it as proportionate, well understood and a necessary safeguard against profit diversion and tax avoidance. It was seen as effective in protecting the UK tax base.

However, a couple of respondents raised concerns about the complexity and perceived arbitrariness of the current definition of ‘non-qualifying territory.’ Some suggested that the definition should be clarified or simplified, potentially by aligning it with statutory tax rates or providing clearer guidance on designation criteria. Several recommended replacing it with a published list of non-cooperative jurisdictions, aligned with international standards (for example, the EU blacklist), to improve clarity and certainty.

Some respondents suggested expanding the definition to exclude territories with headline tax rates equal to or higher than the UK’s. Others cautioned against this due to the unreliability of headline rates as indicators of actual tax risk.

A few responses expressed doubt about the necessity of the non-qualifying territory test, especially given the existence of other anti-avoidance measures. These respondents emphasised the need to avoid duplicative and disproportionate compliance burdens. These views are taken to suggest that its scope could be narrowed to reduce compliance burdens for small enterprises.

There were divided opinions on the proposal to apply transfer pricing rules specifically to interest and royalty transactions. The majority of respondents were clear that they did not support this proposal. Only a few respondents welcomed it, while others warned it would increase complexity and costs. A few suggested alternatives such as simplified reporting via ICTS or streamlined unilateral Advance Pricing Agreements (APAs) for SMEs.

There was broad support for HMRC retaining the ability to issue transfer pricing notices to small enterprises where transactions are relevant to a patent box claim. Further, there was support for small enterprises continuing to have the option to elect into transfer pricing rules.

There was limited support for updating the dormant company exemption, as it was deemed that changes might increase uncertainty or costs unnecessarily.

Overall, the feedback from the majority of respondents leaned clearly in favour of retaining the current exceptions, particularly the non-qualifying territory provision. It was clear from the feedback that the non-qualifying territory provision was well understood and broadly worked well.

Government response

The government has decided that SMEs will continue to benefit from the existing exemption from transfer pricing. The current exceptions to the SME exemption will be retained.

Question 8: The government welcomes views on whether aligning the definition of enterprise with the scope of the participation condition would make the SME exemption easier to apply.

Question 9: The government welcomes views on whether removing partner enterprises from the definition of enterprise would simplify the application of the SME exemption.

There was near unanimous support from respondents in favour of both of these proposals. Respondents consistently described the current EU-derived definition, particularly the “partner” and “linked” enterprise concepts, as complex, unclear, and difficult to apply. Many noted that the current rules create practical challenges, particularly in private equity-backed structures and where data on partner enterprises is hard to obtain.

The proposed alignment with the participation condition was seen as a significant simplification that would better match the scope of transfer pricing rules. Numerous responses also supported removing the concept of partner enterprises entirely, believing it adds unnecessary complexity without clear benefit. This proposal was seen as particularly beneficial for private equity-backed businesses, which often fall outside the exemption due to minority stakes held by investment houses.

While support for the changes was strong, some respondents cautioned that further clarity will be needed. In particular, around how natural persons, investment funds, and common management scenarios are treated under an aligned definition. A few also highlighted the need for clear legislation to avoid ambiguity, loopholes or inconsistencies.

There was general endorsement of the government’s broader aim to simplify and harmonise definitions across tax legislation. Many respondents emphasised that a consistent and well-defined approach would help businesses, especially newly in-scope medium enterprises, navigate the rules more confidently and independently.

Government response

The government is grateful for respondents’ feedback and will continue to reflect on this for any future proposals. In particular, the government sees merit in an import of the relevant operative provisions of the definition of a SME given by European Commission Recommendation 2003/361/EC into UK law. It would also seem preferable for the concept of an enterprise to broadly reflect the scope of the UK’s transfer pricing rules, as given by the participation condition. In addition, the government will keep the concept of a partner enterprise under review for any future proposals.

Question 10: The government welcomes any other comments, suggestions, or feedback on the proposed amendments to the SME exemption.

A small number of respondents reaffirmed their support for the proposal to remove medium-sized enterprises from the SME exemption.

The current SME exemption framework, particularly its reliance on the EU Annex, was seen as cumbersome and difficult to apply, and simplification was welcomed.

However, some respondents also expressed concern about the compliance burden the proposals would impose on medium-sized enterprises. There were suggestions to include measures to ease the transition, such as:

• clear and concise guidance tailored to non-tax specialists
• safe harbours to reduce reliance on costly benchmarking and advisory services
• simplified templates and record-keeping requirements
• phased implementation or grandfathering provisions to allow businesses time to adapt

There was an emphasis on the need for early confirmation of effective dates, legislative clarity, and operational guidance for newly in-scope businesses.

Some respondents suggested raising the upper threshold for small enterprises and cautioned that certain sectors may be disproportionately affected by the proposed changes.

A few responses raised policy-level concerns, questioning the rationale for expanding the scope of transfer pricing without a formal impact assessment or additional exemptions. There was also a call for consistency with the Diverted Profits Tax exemption, and clarity around the interaction with the Unassessed Transfer Pricing Profits rules.

Overall, the proposal was seen as a positive step toward simplification. However, there was a consistent call for HMRC to provide practical support and have proportionate compliance expectations to ensure the reform is workable.

Government response

The government thanks respondents for the comprehensive and useful responses received with regards to this potential measure.

The government has decided that SMEs will continue to benefit from the existing exemption from transfer pricing. The government will continue to monitor the tax at risk and keep all tax policy under review.

International Controlled Transactions Schedule (ICTS)

Question 11: The government welcomes views on the suggested scope of the ICTS requirement. In particular, the government welcomes comments on the proposed application of the requirement to permanent establishments.

Some respondents expressed broader views on the ICTS proposal, as well as responses to the detailed questions. Such broader views are considered here for ease of reference.

Respondents recognised the potential benefits of an ICTS for both HMRC and compliant businesses. Those included improved targeting of HMRC compliance activity and the stimulation of improved standards of transfer pricing analysis.

Some respondents expressed broader views on the ICTS proposal, as well as responses to the detailed questions. Such broader views are considered here for ease of reference.

Respondents recognised the potential benefits of an ICTS for both HMRC and compliant businesses. Those included improved targeting of HMRC compliance activity and the stimulation of improved standards of transfer pricing analysis.

However, many also noted the administrative burdens which might arise. Most stressed the need for any finalised ICTS to be proportionate. Several observed that the level of administrative burden may depend in part upon practical considerations, such as the IT solution and compliance framework.

Responses indicated that different challenges might arise for larger and smaller businesses. Larger businesses are subject to more extensive existing compliance obligations. Conversely, smaller or medium sized businesses may have less access to specialist expertise, and less experience of applying transfer pricing rules. They may also have less advanced reporting systems and processes.

Whilst some welcomed the proposal, a minority of respondents expressed opposition to the introduction of an ICTS.

Many respondents noted that the Organisation for Economic Co-operation and Development (OECD) standardised approach to transfer pricing documentation includes only three tiers (master file, local file, and Country-by-Country Report (CbCR)). Therefore, although many jurisdictions have a similar requirement to the ICTS, there is no consensus at OECD level on a design.

The variations between different forms can exacerbate compliance burdens for businesses operating in multiple jurisdictions. Many noted an internationally agreed design would be desirable, although one observed that this is not within HMRC’s control.

Several respondents expressed the view that the suggested scope was broadly reasonable. There were a small number of opposing views on the inclusion or exclusion of permanent establishments exempted by an election under s18A of CTA 2009.

The following considerations were noted in relation to permanent establishments:

• some respondents felt that the data required would generally be available but documentation may vary from what will typically be in place for intercompany transactions, increasing administrative burdens
• various respondents suggested that clear and detailed guidance on the application of the requirement to permanent establishments would be helpful

A few respondents suggested that groups within the scope of the CbCR/Transfer Pricing Records Regulations should be exempted from the ICTS. Others reiterated the suggestion made in the consultation document that ICTS data should be exempted from the local file.

A few respondents suggested various forms of assistance or easements for smaller businesses coming into the scope of transfer pricing and the ICTS. Suggestions included an exemption/grace period for newly in-scope medium enterprises, or additional guidance tailored to smaller businesses.

A small minority of respondents suggested the data required for permanent establishments might go beyond what was included in overseas requirements similar to the ICTS.

Government response

Taking all of the feedback into account, the government has decided to implement an ICTS and plans to maintain the current suggested scope. The government will consult on the detailed specification of this requirement as further explained below.

The government recognises the various concerns expressed in relation to permanent establishments and larger businesses within the scope of existing transfer pricing documentation requirements. (It is noted that the government does not propose to make any changes to the SME exemption at this time.)

The general repeal of the requirement to apply transfer pricing to UK-to-UK transactions should help offset additional administrative burdens for many businesses.

The government will continue to reflect on how administrative burdens more generally might be mitigated. This will be balanced with ensuring the purpose and benefits of the ICTS are realised. These benefits include improved risk identification and risk assessment for HMRC resulting in better targeted and more efficient enquiry activity benefitting HMRC and compliant businesses.

The government will reflect on possible adaptations needed to ensure that the design is appropriate for both related party transactions and permanent establishment profit allocation.

Question 12: The government welcomes views on the proposed exemption from the ICTS requirement where the total aggregated value of relevant cross-border related-party transactions is below £1 million. Views on whether multiple or alternative thresholds would be preferable are invited.

Respondents generally welcomed the use of an overall threshold to exclude businesses with low volumes of cross-border related party activity. £1 million was considered broadly reasonable by many respondents, although some proposed higher thresholds. Three respondents specified £2 million, £2.5 million and £5 million respectively.

A number of respondents welcomed the simplicity of the proposed test. There were only a few alternatives suggested, which included the possibility of tiered thresholds, a balance sheet test, and proportionate thresholds/safe harbours.

Several responses noted that the current drafting would require a business with any transactions with non-qualifying territories to complete the ICTS. However, transactions of low volumes with such territories would be excluded by the transaction category-level threshold. Some suggested that transactions with non-qualifying territories could be subject to a threshold lower than £1 million.

Some responses suggested that the relationship between the £1 million overall threshold and the £100,000 transaction category-level de minimis was not clearly understood. A number of respondents made comments in relation to measures of materiality which are considered under question 17 below.

Government response

The government believes there is merit in an overall threshold, as well as the separate transaction category-level de minimis. This is intended to ensure that businesses without material cross-border activity are not required to complete an ICTS.

The government believes that the threshold should be simple and clear to minimise the analysis needed to determine whether a business is in scope.

The government will continue to reflect on the comments made regarding the level and operation of the thresholds. These matters will be considered as part of a future technical consultation.

Question 13: The government welcomes any comments or suggestions on the proposed tabular analysis, including both the transaction analysis in Section A and the loan relationship disclosure in Section B.

Several respondents expressed the view that the tabular format appeared broadly reasonable in outline, but questions might arise in the course of practical application.

Respondents stressed the need for clear guidance and definitions, and detailed review of the format in the course of future technical consultation.

One respondent proposed a slightly modified version of the tabular disclosure.

Responses were divided between those that considered a more granular and specific list of transaction types that might better aid useability of the data, and those who preferred a shorter list of broader types.

A few respondents noted that a practical challenge might arise in circumstances where companies bundle a number of different transactions and services together, and then apply a price to, or test the outcome of, these transactions as a whole.

The possibility of deviation between an outcome and a taxpayer’s transfer pricing policy was noted by some respondents as a potential area of difficulty.

A few respondents noted that the current design might need adjustment for the profit split methodology, or a methodology other than the 5 OECD-recognised methodologies.

A few respondents questioned the need for disclosure of foreign exchange movements in section A, as these would likely be reflected in section B.

There were mixed views on the level and nature of disclosure required at Section B. A few respondents suggested that the current design may require some adaptation in order to be suitable for specific industries. In particular, the information currently requested under section B may be more suitable for a business whose primary activity is not in the financial services sector.

Government response

The government is grateful for respondents’ detailed feedback on the proposed tabular analysis. Such feedback will be essential to ensuring that the ICTS strikes an appropriate balance, providing useful data to HMRC without creating undue administrative burdens.

The government recognises that further clarification is needed in a number of areas, including:

• the data to be included (such as when a pricing outcome deviates from an intended policy)
• the application of the ICTS to arrangements such as profit splits or non-standard methodologies

The government will continue to consider respondents’ suggestions, and review the design in light of these. Respondents will have a further opportunity to review and comment on an updated design at the time of technical consultation on secondary legislation.

Clear guidance will be provided in advance of implementation.

Question 14: The government welcomes any comments or suggestions on whether the items of information requested appear reasonable and proportionate, in light of the policy intention to improve risk identification and risk assessment. In addition, are there any other items of information which would be useful for HMRC to have at the time of risk assessment?

Several respondents welcomed the items of information requested, regarding them as broadly reasonable.

Responses noted an essential similarity between the proposed disclosure and that required for the local file, although a few regarded this as duplicative. Others highlighted some differences. A few noted that most of the information appeared consistent with overseas equivalents, although a small number of items were not requested in other countries’ forms.

A small number of respondents suggested the following additional information which could be included in the disclosure:

• confirmation of whether the UK entity or the overseas counterparty is the tested party
• effective tax rate
• an additional category for reimbursed or pass-through costs

A variety of discrete comments were made by individual respondents:

• one respondent queried how the information requested related to the recently published risk indicators included within HMRC’s GfC7
• one respondent suggested that details regarding the transfer pricing methodology, PLI, and pricing applied should not be included
• one respondent suggested that reduced disclosure should be required for arrangements previously identified as low-risk by HMRC
• a small minority of respondents suggested that low value-adding intra-group services should be exempted from disclosure

Government response

The government is grateful for respondents’ comments and suggestions regarding the information to be captured within the ICTS.

The government recognises the need to maximise the use of businesses’ work for existing requirements (such as the local file), without simply duplicating such requirements.

Where there is the potential for unnecessary duplication, the government will consider if this might be mitigated by specific exemptions/easements.

Most suggested changes were to either refine the ICTS, or lead to only moderate alterations to it.

The government will continue to reflect on how to minimise additional administrative burdens and the duplication of existing work.

Question 15: The government welcomes views about the ability to extract the information suggested from businesses’ existing records and systems. Could any changes be made to the template to make collation of data easier, while still extracting fundamentally similar data?

There appeared to be a consensus among respondents that the suggested information should be captured within businesses’ systems. However, it was felt that data extraction would require some manual input and could lead to practical difficulties, particularly in the first year of filing.

These would depend to some extent on the nature of different businesses’ activities and systems. For example, larger and more complex/acquisitive groups may have multiple enterprise resource planning systems, which might make collation of data more difficult.

A few respondents flagged that data collation might prove difficult for businesses which have not previously subjected their transfer pricing policies to detailed review.

Several suggestions specific to IT design were made:

• the ability to support bulk data uploads, including source-to-target column mapping
• static data tables for metadata
• the ability to support roll-forwards and period-by-period comparison
• a standardised XML schema, similar to what is currently used for Country-by-Country Reporting
• use of dropdown menus

A number of respondents suggested that greater flexibility over the approach to aggregation might make data collection easier.

Government response

The government welcomes the comments made by a number of respondents that the information proposed for the ICTS should be captured within existing systems.

The government recognises that data extraction and collation may present practical difficulties, and will continue to consider mitigations through IT design.

More generally, the government recognises that good IT design will be essential to the success of the ICTS. An appropriate IT solution will remain a priority in the course of subsequent policy development.

Question 16: The government welcomes any comments or suggestions on the proposed approach to aggregation.

There was broad support for aggregation in general, and many respondents considered the proposed method to be reasonable. One noted that the current approach to aggregation for financial transactions in section B might result in information which might be difficult for taxpayers to explain within the suggested columnar format.

Various respondents suggested it would be preferable not to aggregate sales and purchases.

A few respondents noted possible differences between the approach to aggregation suggested for the ICTS and HMRC’s expectation for the local file, at INTM450102.

One respondent suggested that the higher-level approach to aggregation proposed for section B might be applied to section A.

A few respondents felt that the current approach to aggregation was too restrictive. One alternative suggestion was for aggregation on a jurisdictional basis, provided transactions are economically comparable, and governed by the same transfer pricing policy and benchmarking. Another respondent suggested aggregation by counterparty, with the resulting balances then analysed by type.

As elsewhere, various respondents stated that clear guidance and examples would be welcome.

Government response

The government welcomes respondents’ thoughtful engagement with the proposal regarding data aggregation.

The government notes that the approach to aggregation will be important in determining the usefulness of data provided, and the resource implications for businesses.

The government will continue to review the approach to aggregation given the detailed feedback provided and will consider the practical implications of the approach adopted.

Respondents will have a further opportunity to comment at the stage of technical consultation.

Question 17: The government welcomes any comments or suggestions on whether the de minimis thresholds suggested appear reasonable.

Many respondents regarded the de minimis thresholds as reasonable.

However, some felt that the proposed £100,000 de minimis threshold for businesses not within scope of CbCR was low. Some respondents proposed applying a flat £1 million de minimis to all businesses (not only those within the scope of CbCR).

A few respondents noted that some level of analysis would be required to determine whether thresholds were met. This may be offset by the reduction in administrative burden provided by such thresholds.

A few respondents suggested that a flat transaction category-level de minimis for all in-scope businesses would be preferable, perhaps at £1 million. Another respondent suggested amending the proposed tiered de minimis to £200,000 to £2 million.

It was also suggested that the average loan balance should be included in the de minimis test in section B (as well as the opening and closing balances).

One respondent suggested an additional general exclusion, where the total volume of transactions with a particular counterparty was less than £100,000.

Again, respondents stressed the need for guidance on how HMRC intended the de minimis to operate in practice, with clear examples.

Government response

The government believes there is merit in a broad overall threshold, to exclude businesses with limited cross-border activity, and a transaction category-level de minimis.

The government notes that any transaction category-level de minimis should align with the approach to aggregation.

The government will continue to reflect on the feedback received and will consider whether adaptation of the current suggested de minimis thresholds and approach is required.

Question 18: The government welcomes views on the proposed question list in Section C, including any suggestions of additional information which would be useful for HMRC to have during risk assessment.

Many respondents regarded the question list as reasonable and consistent with other jurisdictions. Others felt that some or all of the information requested should be captured elsewhere.

Some queried the relevance of certain items for risk assessment and whether HMRC needed the information, beyond what it already held.

Some respondents felt that some of the concepts used would need further definition/clarification (such as business restructuring).

Government response

The government recognises that some of the information captured in the current question list may be included in other data available to HMRC. Capturing this information in the ICTS would have the benefit of allowing ICTS data to be linked efficiently and effectively with other data held by HMRC.

Responses appear to suggest that the data currently proposed would not be unduly onerous to provide. The government therefore intends to maintain a short question list of this nature. Adaptations to the list currently suggested will be considered.

The government recognises the need for clear definitions. Here and elsewhere in the ICTS proposal, the intention is for certain concepts (for example, ‘business restructuring’) to be interpreted in accordance with the TPG. Such referencing would be made clear in any final version of the ICTS.

Question 19: The government welcomes any other comments, suggestions, or feedback on the proposed scope of the ITCS requirement and template.

Some respondents were concerned that data in the ICTS might lack sufficient context to be useful in risk assessment.

Several respondents suggested a ‘soft landing’ for the filing obligation and penalties would be helpful where businesses come into scope for the first time.

Respondents suggested that further detail on the proposed compliance/administrative regime would be helpful, including the proposed filing deadline and penalties.

A number of respondents expressed a wish for a multilaterally agreed and standardised ICTS-equivalent. Some also noted and recognised that while this would be desirable, it would likely be practically very difficult to achieve in the foreseeable future.

More generally, many respondents drew attention to the increasing number of compliance obligations to which larger businesses are subject in the current environment.

Government response

The government is grateful for all of the feedback provided.

The ICTS is intended to assist with risk identification and risk assessment, by summarising businesses’ transfer pricing analysis, and complementing other data available outside of an enquiry.

The government recognises that many businesses are subject to a variety of compliance obligations. There is consequently a need to ensure that any incremental burdens caused by the ICTS are proportionate to the benefits achieved.

The government recognises that sufficient time must be given for both businesses and HMRC to put systems and processes in place for effective implementation.

The government also recognises that in practice, it will take time for both businesses and HMRC to become familiar with the ICTS.

Next steps

Amendments to the exemption for small and medium-sized enterprises

As part of a modern Industrial Strategy, the government is backing firms to start, scale, and stay in the UK. In line with this, the government has decided that SMEs will continue to benefit from the existing exemption from transfer pricing. Avoiding imposing additional administrative burdens on SMEs at this time, the government will continue to monitor the tax at risk and keep all tax policy under review.

International Controlled Transactions Schedule

The government intends to introduce primary legislation in Finance Bill 2025 to 2026 empowering HMRC’s Commissioners to make regulations requiring reporting of specified international controlled transactions.

The government will hold a technical consultation on draft regulations setting out the details of the reporting requirement in Spring 2026. This will give interested stakeholders the opportunity to comment further on ICTS design prior to finalisation and implementation.

Changes are expected to take effect for accounting periods beginning on or after 1 January 2027. This implementation timeline will permit both HMRC and businesses to put the required systems and processes in place.

The government remains mindful of the need for the ICTS to balance the anticipated benefits to HMRC and businesses against potential additional administrative burdens.

The government intends to provide practical guidance to support customers in preparing and filing the ICTS for the first time.

Annex: List of stakeholders consulted

Association of British Insurers

Azets

BDO LLP

Blick Rothenberg

Chartered Accountants Ireland

Chartered Institute of Taxation

Claritas Tax

Confederation of British Industry

Deloitte LLP

DLA Piper UK LLP

EY

Federation of Small Businesses

Forvis Mazars LLP

FTI Consulting LLP

Grant Thornton

Hazlewoods LLP

ICAEW

James Cowper Kreston

Johnston Carmichael

KPMG

Legal & General

Lloyd’s

Menzies LLP

MHA

Moore Kingston Smith LLP

PwC

RSM UK Tax

S&W

Saffery LLP

Sol Petroleum

UK Finance