UK Tax Authority Will Transform Transfer Pricing Risk Assessment

This article was first published in Bloomberg Tax on 13 July 2026.

The UK released its latest consultation document on the International Controlled Transactions Schedule, or ICTS, on June 16. This new annual filing requirement will transform transfer pricing risk assessments for both the UK tax authority, HM Revenue & Customs, and taxpayers, shifting from a documentation-focused process to a data-driven one.

The ICTS, coupled with ever more powerful AI and data-analytic tools, represents a fundamental shift in HMRC’s approach to risk assessment. HMRC will be better informed than ever to identify inconsistencies, errors, outliers, unusual patterns, and year-on-year trends across taxpayers and their peers. Businesses should prepare for heightened scrutiny and visibility of their transfer pricing arrangements.

Proposed changes

The ICTS is a mandatory reporting requirement for in-scope multinational enterprises to file detailed information about their cross-border related party transactions with HMRC. In broad terms, taxpayers will need to provide data on:

• The counterparties to the transaction and their country of incorporation/residence
• The type of transaction, such as sales and marketing services
• The transfer pricing policy applied, such as cost-plus, markup on costs, and relevant cost base
• The quantum of the transaction overall
• Whether any significant business restructurings have taken place
• For transactions with a valuation component, such as transfer of intellectual property assets, the valuation method and critical assumptions such as growth and discount rates

Taxpayers must provide data in a prescribed standardized format — the key feature enabling HMRC’s data-led risk assessment process.

A draft ICTS template has been prepared in Excel, though HMRC is working with software providers on the final format.

The current template is divided into two sections: Section A primarily covers non-financial transactions and valuations, and Section B covers financial transactions.

Each section includes separate subsections for the financial services industry, covering certain high-volume transactions or those relating to regulatory capital.

Financial information should be prepared on the same basis as the tax return and disclosed in British pounds sterling. Where functional currency differs, this and the exchange rates used should be disclosed.

Who is in scope of the new ICTS rules? The scope of the ICTS remains unchanged and covers:

• UK businesses in scope of existing transfer pricing rules
• UK companies with overseas permanent establishment
• Non-UK companies with a UK permanent establishment

Businesses qualifying for the UK’s small and medium-sized enterprise exemption from UK transfer pricing rules (unless the permanent establishment condition is met), or wholly UK groups, won’t need to file an ICTS.

The ICTS applies starting Jan. 1, 2027, meaning most companies will make their first filings in 2028 to accompany their tax returns.

What are the key changes in the consultation document? Building on feedback, the consultation proposes changes to make the process less burdensome:

• Transactions priced under the same comparability analysis can now be aggregated into a single entry. However, transactions must still be reported separately where different pricing methodologies apply, functions and risks differ, or other economic factors affect the transfer price.
• There is greater scope to add context and detail for complex transfer pricing arrangements such as profit splits.
• The draft notice accompanying the consultation proposes a de minimis threshold of £100,000 ($132,000) for aggregated non-financial transactions for which there are reduced filing requirements. This threshold increases to £1 million for large businesses defined as those with revenue of 750 million euros ($855,000) or more that already prepare a master file, UK local file(s), and country-by-country reports.
• For intragroup loans, only the top five debit and creditor relationships (by profit and loss impact and average balance respectively) need full disclosure. De minimis thresholds also apply.
• Compared to the first iteration of the ICTS, the level of data required on financial transactions is much higher, requiring information such as purpose of funds, credit ratings, key financial ratios, tenor, seniority and security.
• Transactions covered by an advance pricing agreement don’t need to be included. However, a low-risk rating from the OECD’s International Compliance Assurance Programme — the voluntary program through which multinational groups can obtain assurance on transfer pricing arrangements from multiple tax authorities — doesn’t qualify for exclusion: ICAP assurances don’t provide legal certainty. This is a specific point on which the government has sought feedback.

Penalties

Penalties will include fixed and daily amounts, with higher penalties for knowingly inaccurate reporting.

HMRC has indicated in the commentary on Part 3 that it will adopt a “soft-landing” approach in the first reporting period, taking a more relaxed view of what constitutes a “reasonable excuse.” HMRC will provide further guidance on this in future updates.

Businesses should prepare

The ICTS represents a significant compliance burden for many businesses. Businesses should already be taking the following practical steps:

• With the ICTS applying from Jan. 1, 2027, businesses should assess now whether they can extract the relevant data from existing management reporting systems. Identify and address any gaps early.
• Gathering the data is only the first step. Once collated, review the data to identify any transfer pricing risks that can be proactively addressed.
• Large businesses should ensure ICTS data aligns with their wider group compliance strategy and other transfer pricing filings, such as country-by-country reports, and consider whether they should discuss any findings from the ICTS in business risk review meetings with their designated compliance manager.

In the immediate term, for those wanting to respond to the consultation, HMRC is accepting comments until July 31.

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