UK Transfer Pricing and Diverted Profit Tax Annual Statistics

Key Takeaways from the UK Transfer Pricing and Diverted Profit Tax 23/24 Statistics

1. Transfer Pricing Yield: The yield achieved by HMRC continues to rise, realising a sum of £1,786 million (£1,635 million in 2022-23) in additional tax revenue from enquiries, Advance Pricing Agreements (APAs), Advance Thin Capitalisation Agreements (ATCAs) and Mutual Agreement Procedures (MAP) cases. We are finding that HMRC continues to focus its efforts on hard-to-value intangibles, management fees and limited risk distribution arrangements, with an additional focus on sufficient and appropriate documentation. Therefore we should expect to see this yield continue to rise in the coming years.  
2. Case Settlement/Enquiries:  The number of transfer pricing enquiry cases settled fell to 128 cases (153 2022-23) with the timeline to settlement falling to 33.1 months (38.9 2022-23).
3. Staffing/Resources: HMRC has maintained a team of 395 full-time staff (297 in 2022-23) working on international tax issues such as TP, DPT, Controlled Foreign Companies (CFCs) and cross-border debt. All these mechanisms are resource intensive which further supports HMRCs introduction of new guidelines for TP compliance published in September 2024 and the mandatory documentation requirements for Multinational Enterprises (MNEs) within the scope of country-by-country reporting (CbCR), to shift taxpayers’ attitudes towards TP compliance in the UK.
4. Increased APAs: APAs are a mechanism which provides a degree of certainty for taxpayers. HMRC agreed 27 APAs in 2023-2024 compared to 15 in the previous year. There were 45 new applications (the second highest year in a row) demonstrating that MNEs want certainty and agreement on their complex and material intercompany transactions. The timeline to reach an agreement has increased to 53 months (45 months 2022-23).
5. MAP Resolutions: 86 cases were resolved (a decrease in prior years) within an average period of 28.8 months in 2023-24, compared to the global average of 32 months. HMRC noted that over 90% of all TP MAP cases were resolved either by agreeing to full double taxation relief with its treaty partners or fully eliminating the double taxation through unilateral relief or through another domestic remedy.
6. ATCA Usage: The number of ATCAs agreed increased slightly to 10 however, this continues to be low which has coincided with the introduction of the Corporate Interest Restriction (CIR) rules introduced in April 2017.
7. Profit Diversion Compliance Facility (PDCF) Investigations: PDCF is proving to be very successful and HMRC is increasingly prioritising its use to bring large businesses' tax affairs up to date quickly and efficiently. Some multinationals have registered to use the facility without waiting for a nudge letter from HMRC. It is expected that there will be an increase in nudge letters issued as HMRC has now progressed and concluded the backlog following the Covid-19 pandemic.
8. Increased DPT Revenue: DPT contributed £108 million, a significant increase on the £40 million received in the prior year. Further demonstrating HMRC’s focus on preventing the use of contrived arrangements resulting in artificial profit shifting. Despite the increase this only accounts for 6% of the total TP yield, suggesting HMRC is focused on prioritising the use of traditional TP audits and PDCF.  

How the continued focus on Transfer pricing could impact UK-based MNEs

The above demonstrates HMRCs continued focus on transfer pricing. Following the introduction of mandatory TP documentation preparation, and the new guidelines for TP compliance in the 2024-25 tax year, expectations of HMRC in respect of compliance are expected to increase. The Autumn Budget 2024 also demonstrated TP will continue to be high on the agenda.

MNEs should therefore be undertaking the following steps to mitigate risk and ensure compliance:

• Review HMRC’s guidance on Guidelines for Compliance for Transfer Pricing (issued 10 September 2024) and consider areas of risk in which the Group may not be compliant;
• Ensure robust documentation outlining the arm’s length nature of intercompany transactions is prepared;
• We recommend large groups undertake thorough gap analyses of their business’ existing transfer pricing compliance, to identify any misalignments with the new requirements in the UK and alignment between the current transfer pricing model and the commercial operational model; and
• Particular focus should be given to being able to substantiate the functional analysis section of the files, the intercompany transactions entered into and the particular contributions to risk management and value creation. The quality of the functional analysis is stressed in HMRC’s current approach to transfer pricing enquiries and is a significant factor in HMRC's rationale for launching its PDCF.

Get in touch with our Transfer pricing team

If you require support with any of the above, have received a PDCF nudge letter, or transfer pricing audit or would like to take advantage of the APA/ ATCA schemes please get in touch with a member of our Transfer pricing team.

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