Mandatory Transfer Pricing filing requirement being introduced from 2027 – What Businesses Need to Know

This marks a major shift in UK transfer pricing (TP) compliance, allowing HMRC to perform an automated, data-led risk assessment, permitting more accurate identification of transfer pricing risk.

Why is it relevant?

Similar to other major economies, transfer pricing is a major focus of tax compliance activity in the UK. HMRC issued extensive additional guidance for compliance in 2024 and 2025, and transfer pricing yield almost doubled between tax year 2023-24 to 2024-25. This, combined with the introduction of the ICTS highlights HMRC’s focus in this area.

In-scope multinationals will need to submit the ICTS containing information related to cross-border transactions with related parties, such as financial information and detail on transfer pricing policies, with the annual UK corporate income tax return. The ICTS will be applied to accounting periods beginning on or after 1 January 2027.

The information will be used for automated risk profiling and manual risk assessment by HMRC compliance teams, allowing for more targeted enquiries.

Who does it affect?

1. Who is exempt?

UK resident businesses which fall within the small and medium-sized enterprises (SMEs) category are currently excluded.

HMRC considers an entity in the UK as a SME if it is part of a group (when aggregated with associated entities, including linked and partner enterprises) that has:

A. Fewer than 250 employees; and

B. Either of the following two categories:

i. the turnover is less than or equal to EUR 50m or

ii. the balance sheet total is less than or equal to EUR 43m.

The ICTS will have a question on this point. Based on the current draft, if the business answers ’Yes’ to this question, they are not required to complete the form.

If all transactions are with qualifying territories , and the aggregate value of transactions are below £1m, then the form does not need to be completed.

2. Who is included?

• The taxpayers who will fall within the ICTS scope include UK companies and UK permanent establishments (PE) with cross border dealings
• Non-SME UK entities or PEs with total foreign related party transactions exceeding £1 million in aggregate during the relevant accounting period, including the income and expenses for services, goods, royalties, and financing need to complete the form; or those with less but with transactions with non-qualifying territories
• Transactions must be reported on a gross basis (total income and total expenses separately) rather than a net amount

What do you need to know?

Historically, UK taxpayers subject to transfer pricing rules needed to maintain evidence of arm’s length pricing by the filing of the UK corporation tax return. An OECD compliant Local File is mandatory for the largest taxpayers (i.e. groups with over EUR 750m in revenue) and recommended for other taxpayers. These only needed to be submitted upon request by HMRC.

Now, HMRC are introducing a submission requirement for transfer pricing via the ICTS. The current draft ICTS requires detailed data on:

• Cross border transactions, segmented by transaction type
• Counterparties involved, by jurisdiction
• Transfer pricing methods used to analyse these transactions
• Profit level indicators used for each intercompany transaction
• Quantum of each cross-border transaction (income and expense)
• Financing arrangements; and
• Asset transfers

The current draft has a tick-box asking whether there has been a change in TP policy in the last year, which could trigger further questions.

The requirement to maintain transfer pricing records evidencing arm’s length pricing remains the same, though it is worth noting that HMRC have released extensive guidance for compliance which affect all taxpayers subject to UK transfer pricing.

Why is there such a change?

We understand the introduction of the ICTS means an automation of risk profiling. HMRC intends to use ICTS data to:

• Automate the identification of transfer pricing risks
• Identify inconsistencies
• Shorten investigations by identifying high risk taxpayers upfront; and
• Target high risk transactions

What should you do next?

We recommend taxpayers and businesses within scope conduct the following actions as soon as possible:

A. Review and strengthen transfer pricing documentation

HMRC will use ICTS for automated risk profiling, so any mismatch between ICTS data, TP documentation, and other tax filings (e.g. R&D claims) will be flagged.

Key actions:

• Ensure the UK-specific local file and master file are up to date
• The UK local file should have accurate delineation of all material intercompany transactions. The intercompany transactions should be appropriately remunerated
• Confirm TP methods used for each cross-border transaction are defensible
• Check when the benchmarking analyses have been last updated. HMRC recommends a fresh benchmarking every three years, with financial updates required in years 1 & 2
• Ensure the intercompany agreements are up to date and reflect the commercial reality of the business

B. Identify gaps in policies, agreements, and evidence

We would strongly recommend taxpayers to review the current TP structure for any gaps or inconsistences. Examples of the common gaps could be any of the following:

• Inconsistent mark ups or pricing;
• Missing or outdated intercompany agreements;
• Local file being prepared without a functional analysis discussion; or
• Transactions lacking benchmarking support

C. Check if systems are able to extract segmented data

ICTS is expected to be an online submission interface, which HMRC will provide. Taxpayers will therefore need systems to extract and submit data accurately.

For taxpayers with multiple or complex transactions, this means reviewing:

• Data quality and completeness, ensuring all intercompany transactions are being captured accurately, and are segmented by transaction type
• Intercompany financing systems are accurate and up to date

In summary, the ICTS will become effective from 1 January 2027, so given the volume of data required and the level of preparedness needed, we recommend business do the following:

1. Review the current TP procedures and policies

2. Check for financing system accuracy

3. Conduct a dry run using the draft ICTS template

Contact us

If you have questions or wish to seek advice to understand how these updates affect you and your business, we encourage you to speak with your usual Blick Rothenberg transfer pricing contact or reach out to Susan Vincent using the form below.