INTM414320 - Exemptions: UK-to-UK exemption

What has been amended, removed, or added in broad terms

The transfer pricing rules at TIOPA10/Part 4 apply to all provisions, both cross-border and UK-to-UK, provided the basic pre-condition (TIOPA10/S147) is met and none of the exemptions apply.

For chargeable periods beginning on or after 1 January 2026, there is no longer a requirement to apply transfer pricing rules to UK-to-UK provisions, provided certain criteria have been met and none of the disqualifying criteria apply.

This is to reduce the tax compliance burden for taxpayers, where the application of UK-to-UK transfer pricing results in a tax neutral position, whilst maintaining protection against a net tax loss.

The application of UK-to-UK transfer pricing typically results in a tax neutral outcome due to access to compensating adjustments under TIOPA10/S174. However, there are exceptions to the general position that the application of UK-to-UK transfer pricing typically results in a tax neutral outcome, and the UK-to-UK exemption is designed to ensure that where a net tax loss could arise, these provisions remain in scope of Part 4.

Detailed explanation of how the provision operates

TIOPA10/S147(3) and (5) require that the profits and losses of the potentially advantaged person or each of the affected persons are to be calculated for tax purposes as if the arm’s length provision had been made or imposed instead of the actual provision.

Where there is a qualifying UK-to-UK provision in a chargeable period, the potentially advantaged person is no longer required to calculate the profits and losses as if the arm’s length provision had been made or imposed instead of the actual provision.

Qualifying criteria:

There will be a qualifying UK-to-UK provision where all of the criteria at TIOPA10/S164A(2)(a) to (d) are met. Broadly, this requires:

  • both persons (the potentially advantaged person and the other affected person) to the provision are UK resident companies throughout the relevant period
  • the provision is relevant to the calculation of the profits and losses of both companies, and throughout the relevant period, any profits (if there are any) arising are chargeable to corporation tax
  • both persons are chargeable to the same statutory rate of corporation tax on such profits
  • during the relevant period, the same reference currency is used

The reference currency will normally be the company’s functional currency, or designated currency where an election is made under CTA10/S9A. However, there can be situations where a different currency is used to calculate the taxable profits in relation to the particular provision in question.

For example, where a company borrows money through a foreign branch that has a different functional currency, the taxable profits and losses from the loan will be calculated by reference to the currency of the branch. The use of ‘reference currency’ is therefore intended to look at the currency in which the taxable profits of the particular provision in question are calculated.

Disqualifying Criteria:

The UK-to-UK exemption will not be available where any of the disqualifying criteria apply (TIOPA10/S164A(2)(e)to (h)):

  • the provision comprises or includes a contract to which CTA09/S589 (contracts not derivative contracts because of underlying subject matter) applies to one but not both of the affected persons
  • an exemption adjustment under CTA 2009/S18A(1) is made (exemption for profits or losses of foreign permanent establishments)
  • the provision is a patent box provision
  • one or both of the persons to the provision is an excluded company (defined at TIOPA10/S164A(5))

There are two other scenarios where an otherwise qualifying provision will be excluded from the UK-to-UK exemption:

  • the potentially advantaged person makes an election for the exemption not to apply to them as a person or to a particular provision for a chargeable period. The election is treated as irrevocable once made
  • the Commissioners for HMRC gives the potentially advantaged person a transfer pricing notice for a chargeable period, where it is expedient to do so to avoid a loss of tax

Where case teams consider that issuing a transfer pricing notice might be appropriate, they must make a referral to the Business, Assets & International Transfer Pricing Team. Such a notice will be issued by the Commissioners for HMRC. A transfer pricing notice will only be issued to avoid any net loss of tax after taking into account the position of both of the persons to the provision.

See INTM414330 for further detail on the giving of transfer pricing notices.

Commencement date

The amendment applies to chargeable periods beginning on or after 1 January 2026.

Consequential changes

  • TIOPA10/S170(zb) – appeals against transfer pricing notices.
  • TIOPA10/S371SD(5A) - requires that the assumptions about controlled foreign companies in section TIOPA10/S371SD(1) are ignored for the purposes of TIOPA10/S164(A). Therefore, the UK-to-UK exemption will not apply when calculating the profits which are subject to a controlled foreign company (‘CFC’) charge.