HMRC updates its International Manual, revising guidance on transfer pricing, permanent establishments, and diverted profits to clarify rules for multinational companies.
The UK tax authority, His Majesty’s Revenue and Customs (HMRC) has updated its International Manual, providing revised guidance on key taxation areas affecting multinational companies.
The updates, published on 16 January 2026, include the following:
Transfer pricing
HMRC has updated pages INTM414010 to INTM414500 to reflect the reform of UK transfer pricing rules. Introduced in the Finance Bill 2025-26, these reforms aim to simplify and modernise transfer pricing, improve tax certainty, and align UK rules with international standards.
The reforms follow a 2023 policy consultation and a 2025 technical consultation, with a summary of responses published at Budget 2025. They amend areas including the participation condition, intangibles, Commissioners’ sanctions, UK-to-UK transfer pricing, OECD-aligned interpretation, and financial transactions.
Generally, the changes apply to chargeable periods beginning on or after 1 January 2026. Transitional rules or differing commencement provisions are detailed in the relevant sections of the Manual. For periods beginning before 1 January 2026, the previous version of Part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 10) remains in force.
These reforms also complement the government’s planned International Controlled Transactions Schedule (ICTS), which will undergo a technical consultation in Spring 2026. HMRC has provided this guidance ahead of the reforms taking effect to support proper application, noting that it is subject to change until the Finance Bill 2025-26 receives Royal Assent.
Permanent establishments
Updates include corrections on hybrid entity double deduction mismatches and stranded deductions under Chapter 9 of Part 6A of the Taxation (International and Other Provisions) Act 2010 (INTM557080). Guidance on foreign permanent establishments of UK companies (INTM282080) now references roll-over relief in the Capital Gains Manual (CG60250C) and depreciating assets at CG60285.
Diverted profits
The introduction and overview of diverted profits (INTM489520) have been amended to reflect current guidance.
The Diverted Profits Tax (DPT) is an important tool to be used to counter profit shifting. It is a closely targeted measure which addresses certain specific arrangements and it should therefore be seen in the context of HMRC’s wider strategy to tackle international tax risk.
DPT applies to profits arising from 1 April 2015 and is focused on contrived arrangements designed to erode the UK tax base. Its primary aim is to ensure that the profits taxed in the UK fully reflect the economic activity here: this is consistent with the aims of the OECD Base Erosion and Profit Shifting project. Specifically, DPT aims to deter and counteract the diversion of profits from the UK by large groups that either:
- (i) seek to avoid creating a UK permanent establishment that would bring a foreign company into the charge to UK Corporation Tax, or
- (ii) use arrangements or entities which lack economic substance to exploit tax mismatches either through expenditure or the diversion of income within the group.
DPT is set at a higher rate than corporation tax to encourage those businesses with arrangements within the scope of DPT to change those arrangements and pay corporation tax on profits in line with economic activity.
The requirement to pay the tax “up front” provides a strong incentive for groups to provide timely information about high-risk transactions and how they fit into the group’s global operations.
It reduces the information bias inherent in complex cases and promotes full disclosure and constructive early engagement with HMRC.
These updates aim to clarify HMRC’s approach to international taxation and ensure compliance with evolving UK tax legislation.
