On 28 April 2025, the government published consultations on: 

• draft legislation providing for the reform of the transfer pricing rules, the concept of permanent establishment and the diverted profits tax (DPT), including:
  • introducing a general exemption from transfer pricing between UK companies where there is no risk of tax loss; and
  • replacing the DPT regime with a new corporation tax charging provision for unassessed transfer pricing profits (UTPP); and
• proposals intended “to protect the UK tax base against cross-border profit diversion by multinational enterprises”, including:
  • removing the transfer pricing exemption for medium-sized enterprises; and
  • introducing a requirement for in-scope businesses to file an international controlled transaction schedule (ICTS) to report information about certain cross-border, related party transactions to HMRC.

The consultations were explored in more detail in an earlier article.  

ICAEW’s Tax Faculty has now responded to the consultations in ICAEW REP 52/25 and 53/25. ICAEW’s responses draw on feedback from members while acknowledging that only a relatively small proportion of members operate in this specialist international space on a routine basis.  

In general, ICAEW members welcomed the removal of the requirement to apply transfer pricing on wholly domestic transactions where there is no tax advantage. This will remove an unnecessary compliance burden for many businesses, supporting tax simplification and the wider growth agenda.  

ICAEW members also broadly welcomed the move to bring DPT within the corporation tax framework as this should bring further simplicity in the application of treaty relief for double taxation. However, some members questioned whether unilateral measures such as UTPP were still appropriate in light of global solutions such as Pillar 1 and Pillar 2, and the wider BEPS action plan. 

Although ICAEW members appreciated HMRC’s rationale for removing the transfer pricing exemption for medium-sized enterprises, there were concerns around the increased administrative burden, particularly for those who at the lower end of the ‘medium’ bracket.  ICAEW suggests that the government considers raising the threshold at which a business qualifies as medium, given that the original thresholds were set at EU level over a decade ago. 

Further, ICAEW members questioned whether the ICTS initiative is absolutely necessary. Members referred to other areas of tax that have seen increased administrative burdens (eg, research and development tax relief) and suggested that, in their experience, the information is largely ignored by HMRC’s compliance teams. ICAEW recommends that either the ICTS is not implemented, or that a much higher transaction de minimis and/or entity threshold is considered if HMRC does not have adequate resources to analyse and use the information appropriately.