UK Launches Open Consultation on Transfer Pricing, Permanent Establishment and Diverted Profits Tax

The UK government has published draft legislation as part of a technical consultation aimed at reforming three key areas of international tax: transfer pricing, permanent establishment, and the Diverted Profits Tax (DPT). These changes are part of a broader International Tax reform package and follow a policy consultation conducted in summer 2023.

Key Proposed Reforms:

Transfer Pricing Simplification

The proposed reforms aim to simplify UK transfer pricing rules, with changes addressing:

• The participation condition
• Treatment of intangibles
• Commissioners’ sanctions
• UK-to-UK transfer pricing
• Financial transactions
• The reforms also interact with related measures, including updates to the SME exemption and the international controlled transactions schedule.

Permanent Establishment Alignment

Reforms in this area will:

• Align UK rules with the latest international standards on defining and attributing profits to a permanent establishment
• Clarify supporting guidance and legislative references
• Update the Statement of Practice 1 (2001) regarding the Investment Manager Exemption

Diverted Profits Tax Repeal

A new charging provision will be created within Corporation Tax for Unassessed Transfer Pricing Profits, allowing for:

• The revocation of the Diverted Profits Tax regime
• Simplification of compliance while retaining key enforcement elements

Consultation Details

This is a technical consultation on draft legislation to enact the proposed changes. The government welcomes feedback from stakeholders and tax professionals.

Deadline to respond: 11:59 PM on 7 July 2025

Documents available for review include:

• Consultation paper
• Draft legislation and explanatory notes for all three reform areas
• Updated Statement of Practice on investment managers

Source/recommended read:

• Reform of transfer pricing, permanent establishment and Diverted Profits Tax - GOV.UK