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Insight – 13.01.25

Corporate Tax Roadmap – an update on Transfer Pricing

Here, we explore the Corporate Tax Roadmap published by the Labour government. … Read more

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Last updated: 13 Jan 2025

Corporate Tax Roadmap – an update on Transfer Pricing

While last October’s Autumn Budget statement was significant for companies due to National Insurance increases, it was relatively light on corporation tax changes. Here, we explore the Corporate Tax Roadmap published by the Labour government.

The main detail on corporation tax within the Autumn Budget was the relatively short Corporate Tax Roadmap, which intends to give businesses clarity and certainty on the future and the UK’s corporate tax framework. The roadmap outlines the government’s plan to further consult on reforms to the UK’s rules on transfer pricing showing that transfer pricing is an area where changes can be expected. The roadmap notes that the following changes to the UK’s transfer pricing regime are being considered:

Lowering the small- and medium-sized enterprise thresholds (although we understand that the government will retain an exemption for small businesses);
Requiring multinationals that fall within the scope of transfer pricing rules to report cross-border related party transactions to HMRC;
Review of the transfer pricing treatment of cost contribution arrangements, where the costs and benefits of developing intellectual property are shared by group companies; and
Removal of the UK-to-UK transfer pricing requirement, which would reduce the UK compliance burden for business.

A removal of transfer pricing documentation requirements on UK-to-UK transactions would clearly be welcome, as for a UK-only group the scope for the ‘mischief’ that transfer pricing rules seek to prevent would be limited. The other measures however suggest a move to increased focus on inter-group pricing in cross-border situations.

About the authors

Devon Buffoni

+44 (0) 20 7710 2624
druryd@buzzacott.co.uk
LinkedIn

Lauren Smyth

+44 (0)20 3824 7029
smythl@buzzacott.co.uk
LinkedIn

Lowering the small- and medium-sized enterprise thresholds (although we understand that the government will retain an exemption for small businesses);
Requiring multinationals that fall within the scope of transfer pricing rules to report cross-border related party transactions to HMRC;
Review of the transfer pricing treatment of cost contribution arrangements, where the costs and benefits of developing intellectual property are shared by group companies; and
Removal of the UK-to-UK transfer pricing requirement, which would reduce the UK compliance burden for business.

Pillar 1 and Pillar 2

The roadmap further sets out the government’s commitment to Pillar 1 and Pillar 2. These measures, for impacted groups, will result in transaction pricing requiring foresight and planning in anticipation of potentially significant tax implications for multinational groups. Once the new rules are in place, there will be a need for more transparency and documentation compliance by the corporate groups in the jurisdictions they function within.

Pillar 1 focuses on the reallocation of multinational enterprise profits to jurisdictions where sales occur and standardising remuneration for routine marketing and distribution activities.

The Pillar 2 framework looks to ensure that businesses with consolidated annual revenues of more than €750 million pay a minimum 15% effective tax rate on profits in each jurisdiction in which they operate.

Once a global solution is in place, the government intends to remove the UK Digital Services Tax. However, uncertainty remains as to the likelihood of a Pillar 1 solution being adopted globally. The agreement of the United States would be essential for successful implementation of the current proposals. The Republican-controlled Congress have to date been vocal in their opposition to an introduction of Pillar 1 and the implementation of Pillar 2. The incoming Trump presidency seems highly unlikely to support Pillar 1 or US implementation of Pillar 2.

Get in touch

The timing and detail of these changes are expected to be confirmed in coming months. However, the important point to note at this point is that transfer pricing is on the government’s radar, and it is essential for businesses to remain aware and ready to act. Buzzacott can support businesses to navigate these changes. Please complete the form below and one of our tax experts will be in touch.