As discussed in an earlier article, the ICTS would be a schedule, in a prescribed format, filed annually along with existing tax return requirements, in which in-scope entities would summarise their reportable cross-border transactions. The requirements would apply to companies of all sizes that are within the scope of the UK transfer pricing rules and would include dealings of a UK permanent establishment (PE) of a non-resident company and dealings of a UK resident company with its overseas PEs.
The ICTS is aimed at enabling automated data-led risk assessment to improve the targeting of HMRC enquiry activity, promoting upstream compliance and reducing the length of transfer pricing enquiries. Although an example of the data required was provided in Excel form for the purposes of the consultation, HMRC will develop an interface to allow the data to be submitted. This in turn will mean systems development by the taxpayer to allow this granular data to be submitted securely and accurately.
The Government consulted on the ICTS previously and alongside the Budget published a consultation outcome and summary of stakeholder feedback received. The Government’s response to the consultation does not indicate any major changes to the original proposed ICTS schema but, as noted above, further technical consultation is planned. Areas needing clarification include what data to report when pricing outcomes deviate from policy and how to report transactions that are covered by complex arrangements like profit splits. Respondents to the consultation have also suggested ways to reduce the compliance burden, such as excluding low value-adding intra-group services.
Notably, the Government has confirmed it is scrapping separate proposed changes to the exemption for small and medium-sized enterprises (SMEs) from UK transfer pricing rules. Originally, a key rationale for the ICTS was to help HMRC risk-assess medium-sized businesses that would have come into scope under a narrower SME exemption. However, the decision not to narrow the exemption has been taken to avoid imposing additional administrative burdens on SMEs in line with the Government’s broader industrial strategy to back firms to start, scale and stay in the UK.