The UK’s tax authority, His Majesty’s Revenue and Customs (HMRC) has launched consultations seeking public input on potential updates to the UK’s transfer pricing framework, permanent establishment rules and the diverted profits tax on 28 April 2025.

The government will introduce a package of draft legislation in respect of the UK’s rules on transfer pricing, permanent establishment, and Diverted Profits Tax.

This measure has been designed to simplify the UK transfer pricing rules in a number of areas including the participation condition, intangibles, commissioners’ sanctions, UK-to-UK transfer pricing, and financial transactions.

Permanent establishment measures are designed to bring the UK’s permanent establishment rules into line with the latest international consensus on both the definition of a permanent establishment and the attribution of profits to a permanent establishment. It will also clarify which supporting guidance and materials can be used in conjunction with UK legislation and update the legislation and Statement of Practice on the Investment Manager Exemption.

The proposed Diverted Profits Tax legislation creates a new charging provision for Unassessed Transfer Pricing Profits within Corporation Tax. This is a significant simplification, repealing Diverted Profits Tax in its entirety while retaining the essential features of the regime.

The first consultation suggests removing the current transfer pricing exemption for medium-sized businesses, thereby narrowing it to only small enterprises. It also proposes introducing a new filing requirement for multinationals to disclose cross-border related party transactions through an international controlled transactions schedule. This would apply to UK-based entities covered by transfer pricing rules, as well as UK branches of overseas companies and UK entities with foreign branches.

The second consultation explores broader changes across transfer pricing policies, the definition and treatment of permanent establishments and the operation of the diverted profits tax.

Both consultations will close at 11:59 pm on 7 July 2025.

The suggested changes are detailed in a policy paper.