The reform of transfer pricing, permanent establishment and Diverted Profits Tax
This tax information and impact note is about reforms to UK law relating to transfer pricing, permanent establishment and Diverted Profits Tax.
Documents
Details
This measure will simplify the UK transfer pricing rules in a number of areas, including:
- the participation condition
- intangibles
- commissioners’ sanctions
- UK-to-UK transfer pricing
- financial transactions
- interpretation in accordance with Organisation for Economic Co-operation and Development (OECD) principles
It will also bring the UK’s permanent establishment rules in line with the latest international consensus on the:
- definition of a permanent establishment
- allocation of profits to a permanent establishment
These reforms will:
- clarify which supporting guidance and materials can be used to interpret UK legislation
- update the legislation and Statement of Practice on the Investment Manager Exemption
- introduce a new way for a UK-resident company to claim relief when a transfer pricing adjustment is made to a connected foreign company, that relates to a UK permanent establishment
The legislation also creates a new charging provision for Unassessed Transfer Pricing Profits within Corporation Tax. This is a significant simplification, repealing Diverted Profits Tax, which is currently a standalone tax, in its entirety while retaining the essential features of the regime.
The government has published finalised legislation on each area, following a technical consultation on draft legislation at Tax update spring 2025: simplification, administration and reform (TUSAR).
The legislation will apply for chargeable periods beginning on or after 1 January 2026.
If you have any questions about these reforms, email dpt-tp-pe-reform@hmrc.gov.uk.