The Finance (No.2) Act 2025-26 has delivered the most significant overhaul of UK transfer pricing rules since 2004. Most changes took effect for accounting periods beginning on or after 1 January 2026, which means if your group has a December year-end, you are already operating under the new regime. If you have a March or April year-end, you have a matter of weeks before these rules govern your first full accounting period.
This is not a tidy restatement of existing principles. It is a substantive restructuring of how the UK taxes cross-border transactions within multinational groups — and it creates both new compliance burdens and, in some areas, genuine opportunities. Here is what CFOs need to understand and act on.
The Scale of the Reform
The reform package covers six discrete areas: the UK-to-UK exemption, financing arrangements and implicit support, the replacement of Diverted Profits Tax with Unassessed Transfer Pricing Profits, intangible fixed assets, the broadened participation condition, and alignment of permanent establishment rules with the OECD Model Tax Convention. Additionally, a new International Controlled Transaction Schedule is being consulted on for 2027. Each of these carries direct CFO implications.
1. The UK-to-UK Exemption: Genuine Simplification
The most welcome change for domestically-structured UK groups is the new exemption from arm’s-length transfer pricing requirements for transactions between two UK-resident companies within the same group. To qualify, both entities must be companies, UK-resident, subject to corporation tax at the same statutory rate, and use the same reference currency.
This removes a significant compliance overhead. Groups that previously documented intercompany management charges, cost allocations, or shared services between UK entities will need to reassess whether that documentation is still required — in most cases, it will not be, and time previously spent on UK-UK benchmarking analysis can be redirected. HMRC retains the power to issue a notice disapplying the exemption where it is “expedient for the collection of tax,” but guidance confirms this will only be used to prevent a net loss of UK tax — not as a routine intervention.
There are carve-outs: the exemption does not apply where one party benefits from the Patent Box, or where financial instruments create a tax asymmetry between the two entities. Taxpayers can also elect to disapply the exemption for specific transactions where that produces a better outcome — for example, where loss relief optimisation makes arm’s-length pricing beneficial.
Action: review your UK-UK intercompany transaction map now and identify which arrangements fall within the exemption. Update documentation policies accordingly before the end of the first qualifying accounting period.
2. Implicit Support: Codified at Last
The codification of implicit support for intercompany financing arrangements has been anticipated since the OECD published Chapter X of the Transfer Pricing Guidelines in 2022. It is now law.
Implicit support recognises that a subsidiary borrowing from a third party benefits from the credit enhancement that comes with being part of a larger group — even where no explicit guarantee has been given. A standalone credit analysis that ignores this is no longer valid for UK transfer pricing purposes. From 1 January 2026, all new borrowing must be priced on the assumption that implicit group support exists. Existing loans must also comply by the start of accounting periods beginning on or after 1 January 2028, though companies can elect early adoption.
For most groups, codification of implicit support will lower the arm’s-length interest rate on intercompany debt — because a supported entity is a better credit than a standalone one. This can create pressure on existing intercompany loan pricing where rates were historically set on a standalone basis. A new irrevocable election under section 153B TIOPA 2010 allows a UK company outside the borrowing unit of a thinly capitalised UK borrower to elect to be treated as if it had provided a guarantee — enabling excess borrowing capacity in UK sister companies to be accessed. Elections must be made within four years of the end of the accounting period, or within one year of a discovery assessment.
Action: review credit rating analyses for all intercompany loans and reassess whether existing rates reflect implicit group support. For thinly capitalised borrowers, evaluate whether a section 153B election produces a more efficient outcome than the existing section 192 claim.
3. UTPP Replaces DPT: Treaty Access Changes Everything
Diverted Profits Tax, introduced in 2015 as a 25% charge outside the corporation tax system, has been repealed. In its place comes Unassessed Transfer Pricing Profits (UTPP) — a corporation tax charge at the main rate plus 6% (effectively 31% at current rates) levied on transfer pricing profits that have not been returned in self-assessment.
The functional difference that matters most to CFOs is treaty access. DPT was deliberately structured outside corporation tax to circumvent double tax treaties, leaving affected groups unable to use the Mutual Agreement Procedure to obtain relief from double taxation. UTPP is a corporation tax charge — which means treaty MAP access is available. For any group with cross-border structures previously in DPT scope, this is a material improvement in the risk profile of voluntary disclosure.
HMRC’s Profit Diversion Compliance Facility will continue under the UTPP regime. HMRC guidance is live at INTM489100. The two gateway tests — the effective tax mismatch outcome (ETMO) and the tax design condition — are retained but refined. The tax design condition now explicitly targets structures designed to erode the UK tax base. The Government resisted calls to substitute “contrived” for “designed” — a distinction with real consequences for borderline arrangements, since “designed” requires only deliberate intent, not artifice.
Action: identify any arrangements previously within DPT scope and assess whether voluntary correction under UTPP — with MAP access — is now commercially preferable to ongoing exposure.
4. Intangible Fixed Assets: Single Arm’s-Length Standard
The dual valuation standard for intangible fixed asset transfers — market value under the IFA regime versus arm’s-length under transfer pricing — has been replaced with a single standard for cross-border transactions from 1 January 2026. Where a related-party transfer is cross-border and within transfer pricing scope, arm’s-length pricing is the sole test.
This matters because arm’s-length price and market value can diverge materially. Arm’s-length analysis under the OECD Guidelines considers the perspectives of both parties, including synergy value and acquirer-specific benefits that may not be reflected in a market value assessment. As KPMG’s analysis of the reform notes, groups will need more granular assessment of IFA transactions where these factors diverge. The reform also improves the interaction between UK domestic law and treaty MAP: because MAP can only determine arm’s-length questions, aligning UK domestic law removes a significant barrier to accessing MAP for IFA disputes. Note also that the capital gains market value test may still apply for pre-April 2002 goodwill and brand assets transferred as part of a business — establishing precisely what is being transferred remains essential.
5. Broadened Participation Condition: PE Funds and Joint Ventures on Notice
The participation condition — the gateway test that determines whether two parties are sufficiently connected for UK transfer pricing rules to apply — has been widened in three respects.
First, a new “common management” limb captures situations where two persons are subject to a legal arrangement providing for unified senior management and shared economic outcomes through a defined mechanism, even without majority shareholding. The most obvious read-across is to private equity consortium arrangements and joint ventures where multiple investors collectively control an asset without any single party holding majority control. HMRC will issue further guidance on targeted structures.
Second, an anti-avoidance provision prevents arrangements designed to avoid meeting the participation condition. Third, HMRC can now issue a transfer pricing notice requiring a taxpayer to file on the basis that participation exists — applying prospectively from the period of the notice. As the EY analysis notes, this gives HMRC a new tool to bring arrangements within UK transfer pricing scope without formal litigation.
Action: if your group involves consortium ownership, joint ventures, or fund structures where no single party holds majority control, review the new common management test against your specific arrangements and document the analysis before HMRC guidance narrows or broadens the scope further.
6. What Is Coming in 2027: The International Controlled Transaction Schedule
From accounting periods beginning on or after 1 January 2027, in-scope multinationals will be required to submit an International Controlled Transactions Schedule (ICTS) as part of their UK corporation tax filing obligations. This is a new, additional reporting layer on top of the Country-by-Country Reporting framework and existing BEPS Action 13 documentation standards.
Technical consultation on the ICTS design took place in spring 2026. The detail of what must be reported — and for which entities — is not yet final. What is clear is that HMRC’s appetite for granular, transaction-level data on related-party dealings is growing. Groups should begin assessing their data infrastructure now rather than waiting for final regulations. The systems, processes, and governance required to produce an ICTS reliably take time to build — and the experience of initial CbCR compliance suggests that leaving it until the regulations are final is not a viable strategy.
The CFO’s Immediate Checklist
These reforms are not theoretical. For any group with UK operations and cross-border related-party transactions, the January 2026 commencement date means you are either already compliant or already exposed. Six actions deserve immediate attention:
- Map UK-UK transactions and confirm which fall within the new exemption — update documentation policies to reflect the change.
- Review all intercompany loan pricing to ensure credit analyses incorporate implicit group support. For new loans post-1 January 2026, this is mandatory. For existing loans, the transition deadline is January 2028, but early adoption may be advantageous.
- Assess UTPP exposure — if you have arrangements previously in DPT scope, model whether MAP-accessible voluntary correction is now commercially preferable to ongoing exposure.
- Review cross-border IFA transactions — particularly IP transfers, brand licences, and technology arrangements — against the new arm’s-length sole standard.
- Audit consortium and JV structures against the new common management participation condition, especially where PE fund structures are involved.
- Begin ICTS readiness assessment — identify data currently unavailable at filing and the systems work required to produce it by 2027.
Guidance Is Still Coming
HMRC has committed to issuing guidance on several new provisions — including financial guarantees, the common management participation test, acting together rules, and intangible asset transfer methodology. That guidance is not yet complete. CFOs operating in the interim face genuine uncertainty in some areas, and the prudent approach is to document the analysis undertaken at the time of each transaction, even where the final regulatory position remains unsettled. The full GOV.UK consultation archive covering the reform’s history is available, as is the HMRC Tax Information and Impact Note.