ICTS legislation: A step change in transfer pricing compliance requirements

The ICTS is a new annual filing requirement to report intercompany cross-border transactions. It is designed to fill gaps in existing transfer pricing (TP) documentation, complementing existing requirements. 

The consultation includes draft legislation, a draft HMRC notice and the revised ICTS template. The changes would enable HMRC to use automated, data‑driven risk assessments to: 

• Better identify transfer pricing risks
• Improve efficiency by encouraging earlier compliance
• Benefit taxpayers with more focused and shorter investigations, concentrated on cases where transfer pricing adjustments are needed

The ICTS will require businesses in its scope to include detailed qualitative and quantitative data of their intercompany transactions, allowing for some conditional aggregation. They will not be required to report intercompany transactions that are exempt from transfer pricing on the ICTS unless the UK resident business has a foreign permanent establishment. This includes transactions covered by the small and medium-sized exemption, and also those covered by an in-force advance pricing agreement (APA) with HMRC.

The ICTS reporting requirement is intended to take effect for accounting periods beginning on or after 1 January 2027, so it is important for businesses to assess the impact and their readiness:

• Be prepared – Start by checking whether you are ready for the ICTS, identifying which intercompany transactions fall within scope and whether they currently have the right data and systems in place to meet the reporting requirements
• Assess transfer pricing policies – Given the increased data that HMRC will now receive, businesses should assess whether current TP policies are appropriate and up to date. Particularly where policies have not been revisited for a number of years, businesses should take a fresh look to make sure they still reflect how the business operates and align with HMRC expectations 
• Strengthen documentation – Businesses should also review the quality of their supporting documentation. Have they prepared benchmarking? Is the functional analysis robust enough? If anything looks weak or outdated, businesses should seek to rectify this well before the first reporting deadline

Below we explore the key aspects of the draft legislation and what the draft ICTS template includes.

Part 1 states that the draft regulations apply for accounting periods beginning on or after 1 January 2027.

Part 2 specifies the entities that have a reporting obligation, and the international controlled transactions (SICTs) that need to be reported. Crucially, the threshold requirement to report SICTs is met (subject to the exemptions stated above) where:

• At least one transaction is with someone based in a non qualifying territory, or
• The transactions are with someone in a qualifying territory and the total combined value of income and expenses from those transactions is –
  • £1 million or more for large businesses (those that are part of a multinational enterprise group that is subject to country-by-country reporting (CbCR)
  • £100,000 or more for other businesses
• It is a financial transaction, in which case there is an additional threshold. Where businesses are in a lending position with someone in a qualifying territory and the total combined value of income and expenses from those transactions is –
  • £50 million or more for large businesses
  • £5 million or more for other businesses

It is important to note that where a transaction gives rise to an income of £200,000 and another gives rise to an expense of £200,000, the total aggregate value of those transactions is £400,000, not £0.

Under the proposed legislation, the ICTS must be filed by the following deadlines:

• For accounting periods beginning on or after 1 January 2027 and ending on or before 30 September 2027, the submission deadline is 30 September 2028
• For those beginning on or after 1 January 2027 and ending after 30 September 2027, the deadline is the filing date for the company’s corporate tax return

The filing date for partnerships with a member within the charge to UK CT closely follows that of companies, whereby if the accounting period was before 30 September 2027, the deadline is 30 September 2028, and where the filing deadline is after 30 September 2027, the filing date is the date of the partnership return date. 

Part 3 covers the draft penalty regime, which is largely consistent with the Transfer Pricing Records Regulation 2023 and CbCR regulations, providing a penalty soft-landing for the first filing period through its interpretation of reasonable excuse.

The legislation proposes fixed penalties of up to £3,000 for inaccuracies in the ICTS, along with £300 for late submission and an additional £60 for each day of delay. However, these penalties are likely to be minimal compared with the potential consequences of an HMRC enquiry that could arise from submitting the ICTS late or with inaccuracies.

Section A is about reporting a business’s non financial related party transactions and how they’ve been priced.

HMRC has incorporated feedback from the 2025 consultation, so the ICTS return now allows transactions to be grouped together more easily. Instead of listing every single transaction, businesses can combine them if they use the same transfer pricing approach and analysis.

• For each group of transactions, businesses need to provide:
• The pricing method used
• Key pricing details (like margins or mark ups)
• What types of transactions are included
• Who the counterparties are
• The overall profit or loss impact
• Extra details for the most important counterparties (top ten)
• Any additional explanations if needed

Importantly, transactions must be reported separately if they use different pricing analyses. Where no transfer pricing analysis is undertaken, businesses can’t group transactions; they must be reported individually. 

A specific section within Section A also addresses valuation methodologies for transfers of intangibles. The ICTS requires detailed information on such transfers, underscoring HMRC’s view that this remains a significant area of transfer pricing risk.

Section A(i) provides an even simpler data capture for financial services businesses that have very large volumes of internal trading transactions. Businesses can use this if:

• They are doing trading and sales activities (as defined under Basel II), and
• Those trades use multiple pricing approaches

Within each trading activity group, the business is required to provide just a high-level summary, including:

• The overall profit or loss from that activity
• The group’s total profit or loss
• Which pricing methods were used
• What activities you carried out
• Who the business has traded with (and where they’re based)
• Any extra explanation, if needed

This section is intended to reduce the workload for businesses with very high transaction volumes. Additionally, if businesses use Section A(i) to report their transactions, this information need not be repeated.

Section B is about financial transactions, such as loans and derivatives. This section focuses only on the most important items, instead of asking for lots of detail on all intercompany financial transactions.

In practice, businesses need to report:

• The top five loan expenses (eg biggest interest payments, if borrowing)
• The top five lending relationships (if lending, based on loan size)
• Key details for these (basic factual information used to price them)

For derivatives:

• Report the top five contracts by profit/loss impact
• Combine the rest into one total figure

The focus in this section is on capturing the largest and most important financial transactions, rather than capturing everything. HMRC has incorporated this feedback from the 2025 consultation, where stakeholders wanted a simplified approach to capture the relevant information.

Section B(i) concerns reporting certain types of regulatory capital within a group (such as Tier 1 and Tier 2 capital). In some financial services businesses, regulatory capital (like certain types of internal funding) can create transfer pricing risk. To deal with this, there’s now a requirement to report these items separately and include basic details, similar to the requirements for other financial transactions.

The ICTS also asks for some basic details about the company (like identifying information), along with answers to a few supplementary questions.

Finally, all figures must be reported in GBP. If the company normally uses a different currency, it needs to:

• State what that currency is
• Explain the exchange rates used to convert the numbers into GBP

The HMRC consultation summarises the impacts from the new legislation. The assessment (which was included in the 2025 Budget shows the impact on the Exchequer rising from an additional £25 million in 2026 to 2027 to £105m the following year, and continuing to rise steadily: adding £150m in 2028 to 2029, £245m in 2029 to 2030 and £350m in 2030 to 2031.

This suggests that HMRC expects the new rules to push businesses to strengthen the design and documentation of their transfer pricing policies. At the same time, it indicates that HMRC is relying on the additional data from the ICTS to improve how it assesses risk, enabling it to carry out more focused enquiries and resolve issues more quickly.

The ICTS is likely to significantly increase the transfer pricing compliance burden for businesses. It will also result in increased scrutiny by HMRC, given the increased accuracy with which transfer pricing risk may be identified and challenged going forward. This reflects a growing global trend toward enhanced documentation and an increasingly aggressive approach by tax authorities to tackling base erosion and profit shifting (BEPS) issues.

But it can also be a useful prompt to get internal data, processes and documentation into better shape. HMRC has been moving in this direction for a while, bringing its requirements more in line with other G20 countries, so it is no surprise this requirement has been introduced.

The consultation closes on 31 July 2026.

Approval code: NTEH7062630