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United Kingdom – Transfer Pricing (2025)

The United Kingdom’s transfer pricing framework is grounded in the arm’s length principle and is primarily codified in the Taxation (International and Other Provisions) Act 2010. Section 147 establishes that tax calculations must be based on an arm’s length provision rather than the actual provision, stating “The profits and losses of the potentially advantaged person are to be calculated for tax purposes as if the arm’s length provision had been made or imposed instead of the actual provision” (Section 147 Taxation (International and Other Provisions) Act 2010). Section 164 mandates that transfer pricing legislation should be interpreted so as to “best secures consistency” with the OECD Transfer Pricing Guidelines (Section 164 Taxation (International and Other Provisions) Act 2010). The application scope is framed by the “basic pre-condition” in section 147 and the “participation condition” in section 148, with further definitions in sections 157 to 163 that refer to the definition of control in section 1124 of the Corporation Tax Act 2010.

Arm’s Length Principle and the role of the OECD Guidelines

UK legislation explicitly requires that domestic transfer pricing rules be interpreted in a way that is consistent with the OECD Transfer Pricing Guidelines. Section 164 provides the statutory basis for this approach, effectively incorporating OECD guidance on methods, comparability analysis, adjustments, intra-group services, financial transactions and other topics into the interpretation and application of UK law. Consequently, the OECD Guidelines serve as the primary reference for evaluating compliance with the arm’s length principle in the UK.

UK law contains detailed rules for determining related party status set out in Sections 147 to 163 of the Taxation (International and Other Provisions) Act 2010. Section 148 sets out the “participation condition” and distinguishes Condition A and Condition B. Condition A applies where the actual provision relates to financing arrangements and requires that, at the time the provision was made or within six months thereafter, one affected person participates directly or indirectly in the management, control or capital of the other, or the same person participates in the management, control or capital of both (Section 148(2)). Condition B applies where the actual provision does not relate to financing arrangements and requires that, at the time the provision was made, there is direct or indirect participation in management, control or capital between the affected persons, or by the same person (Section 148(3)). “Financing arrangements” is defined in Section 148(4) as arrangements for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance. Sections 157 to 163 elaborate the interpretation of direct and indirect participation by reference to the definition of control in section 1124 Corporation Tax Act 2010 and include rules attributing rights and powers when determining company or partnership control.

Methods and application criteria

The United Kingdom permits the use of the standard transfer pricing methods consistent with the OECD Guidelines. Section 164 confirms that the UK’s legislation should be read in a manner consistent with the OECD TPG, and the country profile indicates the acceptance of CUP, Resale Price, Cost Plus, TNMM and Profit Split methods, as well as other methods where appropriate. The UK applies the “most appropriate method” criterion for method selection, following the OECD’s guidance on selecting the method that best reflects the transaction between independent parties. There is no rigid statutory hierarchy; instead, method choice is driven by suitability to the facts and circumstances of the transaction (Section 164 Taxation (International and Other Provisions) Act 2010).

Comparability and ranges

The UK follows the OECD guidance on comparability analysis found in Chapter III of the TPG, as incorporated via Section 164. There is no legal preference for domestic comparables over foreign comparables. HMRC does not use secret comparables for transfer pricing assessments. UK law allows for the use of arm’s length ranges and statistical measures to determine arm’s length remuneration, and comparability adjustments are required when material differences affect comparability, consistent with the OECD approach (Section 164 Taxation (International and Other Provisions) Act 2010).

Documentation and reporting

For transfer pricing documentation, the UK requires Country-by-Country (CbC) reporting for multinational enterprise groups with consolidated group revenue of at least EUR 750 million in the previous period. The CbC report must be filed with HMRC within 12 months following the end of the relevant reporting period. The UK does not require submission of the master file or local file to HMRC, although HMRC expects that transfer pricing documentation be retained to support arm’s length pricing and that such documentation be proportionate to the size and complexity of the transactions or business concerned and consistent with Annexes I and II of Action 13. The UK government announced an intention in 2022 to legislate to require the largest businesses to maintain master file and local file documentation with effect from April 2023. CbC obligations are set out in The Taxes (Base Erosion and Profit Shifting) (Country-by-Country) Reporting Regulations 2016 and its 2017 amendment. There are penalties for failure to file a CbC report and for inaccurate information, under those Regulations and Section 227 Taxation (International and Other Provisions) Act 2010, and penalties may also be levied for false or misleading statements in APA applications.

Safe harbours, exemptions and materiality

The UK does not maintain general safe harbours in transfer pricing. However, there is a simplification: an exemption from transfer pricing legislation for small and medium-sized enterprises under Section 166 and Section 172 Taxation (International and Other Provisions) Act 2010, where the SME definitions align with the Annex to EU Commission Recommendation 2003/361/EC. No broad sectoral safe harbour regime is described in the country profile.

APAs and MAP; procedures and timing

The UK provides Advance Pricing Agreements (APAs) as well as access to Mutual Agreement Procedure (MAP) to resolve transfer pricing disputes. APAs may be unilateral, bilateral or multilateral and are provided under Part 5 of the Taxation (International and Other Provisions) Act 2010. Administrative statements such as Statement of Practice 2/10 and Statement of Practice 1/18 offer procedural guidance. The country profile lists these mechanisms but does not specify standard timelines for APA or MAP resolution; therefore the profile does not provide specific domestic guidance on processing times, and practitioners should consult HMRC guidance and practice statements for procedural timeframes.

Penalties and other considerations

Besides penalties linked to CbC filing and inaccurate CbC information, the UK has comprehensive rules dealing with financial transactions and their tax treatment. The legislation contains provisions relating to giving security and series of transactions involving guarantees in respect of a security (sections 152 to 154), definitions of related parties for financing arrangements (sections 161 and 162), alternative methods for claiming corresponding adjustments where a security is involved (sections 182 to 184), tax treatment of excessive interest (sections 187 and 187A) and the position of a guarantor of an affected person’s liabilities under a security (sections 191 to 194), all within Taxation (International and Other Provisions) Act 2010. In 2017 corporate interest restriction rules were introduced in Part 10 and Schedule 7A Taxation (International and Other Provisions) Act 2010, implementing Action 4 BEPS measures. The profile indicates that the UK does not apply secondary adjustments in the formal sense addressed in the questionnaire. Regarding year-end adjustments, the statutory requirement that profits be calculated “as if the arm’s length provision had been made or imposed instead of the actual provision” implies that taxable profits must reflect what would have occurred at arm’s length during the relevant period, without requiring every separate intra-period transaction to be adjusted individually at year-end (Section 147 Taxation (International and Other Provisions) Act 2010).

Attribution of profits to permanent establishments (PEs)

The UK regards the Authorised OECD Approach (AOA) as an informative approach and will consider its application in cases where treaties include the revised 2010 (or later) version of Article 7. Domestically, UK rules determine profits attributable to a non-resident under a separate entity principle that aligns with the older Article 7 approach. The UK currently has 17 double tax treaties in force incorporating the new version of Article 7. Where treaty provisions differ from domestic law, the UK will apply the AOA to the extent the treaty overrides domestic rules, but notes that domestic law is not fully aligned with the AOA in all respects, notably in relation to mark-ups on internal dealings where domestic law generally allows internal dealings to be passed on at actual cost, which can create differences with the AOA.

Conclusion

The United Kingdom’s transfer pricing regime is closely aligned with the OECD Transfer Pricing Guidelines through statutory requirement of interpretative consistency. The law contains explicit provisions for defining related parties, applying OECD-consistent methods with the “most appropriate method” principle, and addressing financial transactions and documentation obligations including CbC reporting. APAs and MAP are available as dispute prevention and resolution mechanisms. No general safe harbours exist, though SMEs benefit from a statutory exemption, and the UK does not apply secondary adjustments formally. For procedural details and administrative practice—such as APA/MAP timelines, precise content and language requirements for documentation, and updates to master/local file filing obligations—practitioners should consult HMRC guidance and the original statutory texts.

References

For further information and the OECD country profile for the United Kingdom see: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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