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
