The update revises the section which sets out HMRC’s approach to identifying comparable uncontrolled transactions to determine arm’s length pricing.
The UK’s HM Revenue and Customs (HMRC) revised its Transfer Pricing Operational Guidance (INTM480000) on 10 November 2025. The update revises the section Searching for comparables: range of results (INTM485120), which sets out HMRC’s approach to identifying comparable uncontrolled transactions to determine arm’s length pricing.
Searching for comparables: range of results
When searching for potentially comparable uncontrolled transactions, case teams often encounter a wide range of results. HMRC guidance states that all available evidence should be considered to determine the arm’s length price. If the tested party’s results fall within the acceptable range of arm’s length prices, no adjustment is needed. However, if the results fall outside the range, the tax computation must be revised so that the arm’s length price replaces the actual transfer price.
Key issues with a range of results
There are three main considerations when assessing a broad range of comparables:
- Reliability of comparables – Case teams should assess whether all comparables are equally reliable and remove any less comparable companies from the dataset.
- Use of statistical tools – If comparability defects remain and there is a sizeable number of observations, statistical tools can enhance reliability.
- Adjustment within the range – If the filed position falls outside the arm’s length range, HMRC must determine the appropriate point within the range to adjust to.
Each comparable company should be reviewed individually. Even after removing less comparable companies, the remaining range may still be large. Case teams must ensure the arm’s length range is based on the most reliable data.
Use of interquartile ranges (IQR)
Transfer pricing reports typically list identified comparable companies, with an interquartile range often applied to the financial results. The IQR removes the lowest and highest quartiles, identifying the median value as the middle point of the comparables. While neither Part 4 of TIOPA10 nor the OECD Transfer Pricing Guidelines (TPG) mandates the use of an IQR, paragraph 3.57 of the TPG notes that statistical measures like the IQR can improve reliability when:
- Comparability defects remain despite careful selection and adjustment of comparables, and
- A sizable number of observations exist.
The number of observations alone does not determine reliability. However, when comparability defects persist across many comparables, applying the IQR can enhance confidence in the results. Case teams should avoid inflating the number of comparables without ensuring they are reliable.
Narrowing the range
To refine the range of results, case teams should examine each comparable company closely. Key considerations include:
- Excluding obvious outliers or including additional relevant comparables, potentially identified through commercial databases.
- Identifying subsets of comparables that more closely match the tested party. For example, if the report lists 16 companies conducting contract R&D in computing, a narrower subset of three companies focused solely on software R&D may be more comparable.
Setting the transfer price within the range
According to the OECD Transfer Pricing Guidelines, if the tested party’s results fall within the arm’s length range (potentially the interquartile range), no adjustment is required. If the results fall outside the range, HMRC must determine where to set the transfer price. Paragraph 3.62 of the Guidelines highlights that, when comparability defects remain, measures of central tendency—typically the median—may provide the most defensible adjustment point.
Using the median maximises the likelihood that the adjusted price falls within the true arm’s length range. Where Mutual Agreement Procedures (MAP) are available, starting with the median offers a defensible position and provides a strong basis for competent authority discussions.
