What are the UK transfer pricing rules?
Answered 17 March 2026
UK Transfer Pricing Rules
What the law says
Statutory basis: The UK transfer pricing rules are contained in Part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010). The basic pre-condition for the rules to apply is set out in TIOPA 2010, s.147, which requires that the "participation condition" (s.148) is met.
Core principle – arm's length: Where a person has transactions with a connected party, transfer pricing rules require that tax is calculated on the basis of what the arm's length provision would have been, if the actual provision confers a tax advantage compared to the arm's length result. The "actual provision" and "arm's length provision" are defined in TIOPA 2010, ss.149 and 151 respectively.
Scope – cross-border and UK-to-UK: The rules apply to both cross-border and UK-to-UK transactions, provided the basic pre-condition in s.147 is met and no exemptions apply. However, for chargeable periods beginning on or after 1 January 2026, there is no longer a requirement to apply transfer pricing rules to UK-to-UK provisions, provided certain criteria are met and none of the disqualifying criteria apply.
SME exemption: There is an exemption from the transfer pricing rules for most transactions by small and medium-sized enterprises (SMEs), assessed on a group basis, under TIOPA 2010, ss.166–171. Note that this SME exemption does not apply to UK REITs.
Compensating adjustments: Where a transfer pricing adjustment is made to one party, the counterparty may claim a compensating adjustment under TIOPA 2010, s.174. However, a claim under s.174 is not available where the disadvantaged person is an individual (not a company) within the charge to income tax and the advantaged person is a company (s.174A).
OECD principles: Part 4 of TIOPA 2010 must be interpreted in accordance with the OECD Transfer Pricing Guidelines. The relevant version is the OECD Guidelines approved on 22 July 2010, as revised (including by the BEPS Actions 8–10 Final Reports of 5 October 2015), or such other document designated by Treasury order.
Priority over other rules: Transfer pricing rules take precedence over other tax provisions. For example, where a transaction falls within Part 4 of TIOPA 2010, other rules (such as those for trading stock valuations and loan relationship credits/debits) are disapplied in favour of the transfer pricing treatment.
Unassessed Transfer Pricing Profits (UTPP): From accounting periods beginning on or after 1 January 2026, the Diverted Profits Tax is replaced by the Unassessed Transfer Pricing Profits (UTPP) rules, which are an extension of the Part 4 transfer pricing rules and form part of the UK's corporation tax regime. These strengthen HMRC's ability to challenge contrived arrangements by multinational groups that seek to circumvent UK transfer pricing rules.
HMRC guidance / practice
Purpose of the rules: The transfer pricing rules exist to ensure that individual group members are taxed on the basis that they act at arm's length in their dealings with each other. Where the terms of a transaction between connected parties are not comparable with arm's length terms, transfer pricing adjustments will be necessary in the tax computations of both parties.
OECD Guidelines in practice: In applying the rules, the UK observes the OECD Transfer Pricing Guidelines. These apply across all sectors of the economy, including, for example, film production. Government policy interventions should be treated as market conditions to be taken into account when evaluating the transfer price.
UK-to-UK transactions – rationale for 2026 exemption: The application of UK-to-UK transfer pricing typically results in a tax-neutral outcome due to access to compensating adjustments under s.174. The new UK-to-UK exemption (from 1 January 2026) is designed to reduce compliance burdens where the outcome would be tax-neutral, while maintaining protection against a net tax loss.
Thin capitalisation: Transfer pricing rules also encompass thin capitalisation (the transfer pricing of intra-group financing). Advance Thin Capitalisation Agreements (ATCAs) are available under the Advance Pricing Agreement legislation at TIOPA 2010, ss.218–230, allowing businesses to agree in advance the arm's length treatment of financial transactions.
Record-keeping: For UK entities with provisions within the scope of Part 4 TIOPA 2010, taxpayers must keep records sufficient to demonstrate that transactions with related parties have been identified and determined in accordance with the arm's length principle. HMRC recommends preparing documentation in line with the OECD's recommended approach (Master File/Local File) even where the MNE group threshold for mandatory Country-by-Country Reporting is not met.
Detailed guidance: HMRC's detailed guidance on the transfer pricing rules is found in the International Manual from INTM410000 onwards.
Citation sources
Part 8 Intangible fixed assets Chapter 13 Transactions between related parties Transfers treated as being at market value Transfers not at arm's length 846 1 Section 845 does not apply if the consideration for the transfer— a falls to be adjusted for tax purposes under Part 4 of TIOPA 2010 (provision not at arm's length), or b falls within that Part without falling to be so adjusted. 1A Subsection (1B) applies in relation to the transfer of an intangible asset where— a by virtue of subsection (1
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PART 1 Income tax, corporation tax and capital gains tax CHAPTER 4 Other provisions Transfer pricing Transfer pricing: restriction on claims for compensation adjustments 75 1 Chapter 4 of Part 4 of TIOPA 2010 (transfer pricing: position of disadvantaged person) is amended as follows. 2 In section 174 (claim by the affected person who is potentially advantaged), in subsection (3), before the entry for section 175 insert— “ section 174A (claim not allowed in some cases where the disadvantaged pers
The Unassessed Transfer Pricing Profits rules (hereafter UTPP) were introduced in 2025 to replace the Diverted Profits Tax. They strengthen HMRC’s ability to challenge the use of contrived and artificial arrangements by multinational groups that seek to circumvent UK transfer pricing rules and thereby underreport profits attributable to UK economic activity. The rules are an extension of the transfer pricing rules contained in TIOPA10/Part 4 (INTM410000) and form part of the UK’s corporation ta
Part 2 Income tax, corporation tax and capital gains tax Miscellaneous Transfer pricing: application of OECD principles 58 1 In section 164 of TIOPA 2010 (Part to be interpreted in accordance with OECD principles), for subsection (4) substitute— 4 In this section “ the transfer pricing guidelines ” means— a the version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations approved by the Organisation for Economic Co-operation and Development (OECD) on 22 July 2
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Where someone has transactions with a connected party, then transfer pricing and thin capitalisation rules may require tax to be calculated on the basis of what the ‘arms length’ provision would have been - if the actual provision confers a tax advantage in comparison with the ‘arm's length’ result. The rules apply to transactions between UK taxpayers, as well as cross border transactions. There is an exemption for most transactions by small and medium-sized enterprises (as assessed on a ‘group’
PART 3 Income tax and corporation tax Transfer pricing Transfer pricing: application of OECD principles 75 1 In section 164(4) of TIOPA 2010 (Part to be interpreted in accordance with OECD principles)— a in paragraph (a) after “2010” insert “ as revised by the report, Aligning Transfer Pricing Outcomes with Value Creation, Actions 8-10 - 2015 Final Reports, published by the OECD on 5 October 2015 ” , and b in the words after paragraph (b)— i for “such material” substitute “ material which is ” ,
The transfer pricing rules at TIOPA10/Part 4 apply to all provisions, both cross-border and UK-to-UK, provided the basic pre-condition (TIOPA10/S147) is met and none of the exemptions apply. For chargeable periods beginning on or after 1 January 2026, there is no longer a requirement to apply transfer pricing rules to UK-to-UK provisions, provided certain criteria have been met and none of the disqualifying criteria apply. This is to reduce the tax compliance burden for taxpayers, where the ap
Part 12 Real Estate Investment Trusts Chapter 5 Assets etc Ring-fencing of property rental business Disapplication of certain provisions 542 1 Section 66 (ring-fencing of losses from overseas property business) does not apply to property rental business of a UK company which is, or is a member of, a UK REIT. 2 Sections 166 to 171 of TIOPA 2010 (transfer pricing: exemption for small and medium enterprises) do not apply to a UK company which is, or is a member of, a UK REIT (whether to property re
Under the general duty to keep and preserve records, a relevant person is not required to keep and maintain the specified transfer pricing records for UK entities that are not part of an MNE group that meets the CbCR threshold (see INTM450020), however they are still required to keep records to make and deliver a correct and complete return. For UK entities that have provisions within the scope of Part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010), a relevant perso