Adjustments to Business Transfer Values, Perennial Company Ownership, and Tax Evasion Prevention Levy
Revamped Article:
Here's a rundown of a tech-savvy assessment on draft legislation revamping three components of the UK's international tax guidelines:
- Transfer Pricing
- Permanent Establishment
- Diverted Profits Tax (DPT)
This review comes hot on the heels of a summer 2023 policy debate focusing on these topics.
On this very page, you'll find:
- Consultation Document: Reinventing UK Law regarding Transfer Pricing, Permanent Establishment, and DPT
- Statement of Practice 1 (2001): handling investment managers and their foreign clientele
- Permanent Establishment Draft Legislation
- Explanatory Notes: Permanent Establishment
- Transfer Pricing Draft Legislation
- Explanatory Notes: Transfer Pricing
- Draft Legislation: Unassessed Transfer Pricing Profits
- Explanatory Notes: Unassessed Transfer Pricing Profits
Additionally, you can dig into a Tax Impact and Note.
Keep in mind that...
Background:The UK's 2023 policy debate focused on modernizing and clarifying tax rules to reinforce the UK tax base and enhance compliance.
Consultation Blueprint:The consultation addressed key regions for change:
- Transfer Pricing Revamp: HMRC proposed expanding the UK transfer pricing rules, including a novel "direct participation" concept to grab arrangements under common management, even if separate companies own different shareholders. New anti-avoidance provisions and HMRC's power to demand taxpayers under investigation to file as if participation conditions are met are also part of the plan. "Acting together" rules were tightened to gather equity holdings of lenders and decide participation in management, control, or capital.[1]
- Exemption Overhaul: The consultation suggested removing the transfer pricing exemption for medium-sized companies and maybe redefining small enterprises. It also proposed a new International Controlled Transactions Schedule (ICTS) forcing multinationals to disclose cross-border related-party transactions to HMRC, regardless of group size. This move aims to bolster transparency and simplify targeted compliance efforts.[2]
- PE/DPT Revamp: Although specifics were scarce in the summary, the consultation is part of a broader government initiative to revise legislation related to permanent establishments and DPT, adhering to worldwide standards and plugging tax avoidance loopholes.[4][5]
Impact and Goals Overview:- The reforms strive to clarify the UK tax base by capturing strategies currently outside transfer pricing rules, strengthening anti-avoidance measures, and improving transparency through increased reporting requirements.
- Removing the exemption for medium-sized companies means more businesses will fall under transfer pricing rules, leading to heightened compliance and administrative workloads for these firms.
- The ICTS would impose fresh reporting obligations, demanding detailed data on cross-border related-party transactions from not just large groups but also smaller ones, resulting in increased scrutiny and potentially more HMRC transfer pricing probes.[2][3]
- HMRC is geared to use data analytics and automated risk recognition to pinpoint non-compliance more efficiently, increasing the likelihood of investigations where suspicious or out-of-the-ordinary behavior is detected from ICTS data.
- There's an intention to scrap transfer pricing rules for purely domestic UK-to-UK transactions to simplify the system where there's no threat to the UK tax base.[1][2]
This consultation is part of a suite of reforms initiated in 2023 and continued with additional consultations and legislative discussions throughout 2025, indicating the UK government's dedication to enhancing international tax rules while streamlining domestic compliance.[1][4]
wrapping it up, the 2023 policy debate proposed transformative measures aimed at expanding transfer pricing coverage, boosting transparency via mandatory reporting (ICTS), tightening rules against avoidance, and revising permanent establishment and DPT regimes to shield the UK tax base effectively. These reforms will entail increased compliance obligations and administrative workloads for affected businesses but aim to enhance tax compliance consistency with evolving international standards.
- The summer 2023 policy debate in business and finance circles focused on revising the UK's transfer pricing rules, with a goal to expand coverage and introduce new anti-avoidance measures, as part of a broader effort to enhance compliance with international standards.
- A key component of the 2023 policy debate was the proposed revision of the permanent establishment and Diverted Profits Tax (DPT) legislation, with an aim to adhere to worldwide standards and plug tax avoidance loopholes, thereby reinforcing the UK tax base.
