INTM414020 - Reform of transfer pricing: Summary of reform of transfer pricing

Summary of changes to the participation condition  

The participation condition is amended to include: 

  • TIOPA10/S148A - a power allowing HMRC to issue a transfer pricing notice requiring a taxpayer to file on the basis that there would be participation under Article 9 of the OECD’s Model Tax Convention for the chargeable period it is issued and future chargeable periods
  • TIOPA10/S162A - a new form of direct participation where two persons are subject to an arrangement for common management and it is reasonable to suppose this results in a prescribed alignment of economic interests  
  • TIOPA10/S162B - an anti-avoidance provision ensuring participation where a person enters into arrangements with a main purpose of not meeting the participation condition 

The existing conditions for participation at TIOPA10/S148 remain unchanged. 


Summary of changes in respect of intangibles 

Finance Bill 2025-26 introduces a single valuation standard for transactions involving the transfer and licence of intangible fixed assets made on or after 1 January 2026. For cross-border transactions between related parties within the scope of TIOPA10/Part 4, the arm’s length price will apply. In all other cases, the market value will be used. 

The existing legislation, as explained from CIRD45000 onwards, will continue to apply until the Finance Bill has passed through Parliament and received Royal Assent. Further guidance on the amended rules will be published in HMRC’s Corporate Intangibles Research and Development Manual in due course.  

 

Summary of changes to UK-to-UK transfer pricing  

Subject to certain conditions that are intended to ensure that there is no risk of a net UK tax loss, domestic provisions between UK companies are exempt from transfer pricing under TIOPA10/S164A.  

Taxpayers will be able to elect to apply transfer pricing should they wish to do so and the Commissioners of HMRC may issue a transfer pricing notice to avoid a net loss of tax for the chargeable period(s) concerned. 

 

Summary of changes to financial transactions 

The UK transfer pricing legislation applies to financial transactions as it does to any other controlled transaction. General guidance on transfer pricing is provided at INTM412000. 

The financial transactions rules have been amended to more closely align to Chapter X of the OECD Transfer Pricing Guidelines, as follows:  

  • TIOPA10/S152 and TIOPA10/S153 have been omitted  

  • TIOPA10/ S153A outlines that, in consideration of the effects of a guarantee, an intra-group guarantee that increases the quantum of debt available to the borrower will not be considered an arm’s length guarantee  

  • TIOPA/S153B introduces an election mechanism that allows UK resident companies to act as a deemed guarantor for certain related parties  

  • TIOPA10/S154 has been amended to carve out implicit support from the definition of a guarantee and to outline that implicit support should be taken into account when considering the transfer pricing of financial transactions 

The rules for indirect participation in respect of financing arrangements have also been amended. TIOPA10/S161 the “acting together” rules have been simplified with the introduction of a test for parties with parallel equity interests.   

Consequential changes have also been made to the compensating adjustment rules in respect of financial transactions. TIOPA10/S175, S191, and S192 have been amended to reflect amendments to the guarantees rules at TIOPA10/S153A and TIOPA10/S154. 

Amendments have been made to simplify the language used when referring to financial transactions throughout TIOPA10/Part 4. 

 

Summary of changes in respect of OECD principles  

TIOPA10/S164 has been amended to clarify how OECD principles apply to UK transfer pricing legislation as follows:  

  • The existing position that the OECD Model Tax Convention (MTC) and Transfer Pricing Guidelines (TPG) are interpretative aids regardless of whether there is a treaty in place is made explicit  

  • The MTC is to be interpreted in accordance with, or supplemented by, the OECD Commentary on Article 9 

  • TIOPA10/Part 4 is to be interpreted in accordance with the most recent versions of the MTC, OECD Commentary, and TPG, adjusted for any reservations, declaration or elections made by the UK on those materials  

  • The Treasury can make regulations: 

  • regarding the effect of elective provisions in the TPG  

  • so that TIOPA10/Part 4 is not interpreted in accordance with specified amendments or replacements of the MTC and TPG (i.e. to ‘opt out’ of updates) 

 

Summary of changes in respect of Commissioners’ sanctions  

The requirement for the Commissioners for HMRC to sanction transfer pricing determinations has been omitted (previously TIOPA10/S208 to S211).  

Oversight of transfer pricing determinations will be provided through internal governance frameworks which were not in place when the legislative requirement for sanction was introduced and which have been operational for some time. The Business, Assets & International Transfer Pricing team will continue to be involved with transfer pricing determinations.  

This change has effect in relation to any transfer pricing determination made on or after the day on which Finance Act 2025-26 comes into force.