ICTS: Preparing firms for new UK TP reporting

Will the ICTS apply to professional services partnerships?

The UK transfer pricing rules apply for income and corporation tax purposes, but the ICTS measure is a corporation tax measure only. This means only companies within the charge to UK corporation tax (including non-resident companies which are trading in the UK through a permanent establishment) are potentially within the scope of the ICTS reporting requirement and only to the extent that those companies have ‘international controlled transactions’. This is broader than it may appear as international controlled transactions include notional transactions (i.e. dealings) of a permanent establishment.

Professional services businesses operating in the UK are typically structured as a limited liability partnership (LLP) and if there are no corporate members of the LLP then ICTS reporting obligations may not arise if there are no UK corporation tax return filings required in relation to the activities of the partnership. However, for professional services businesses which have entities which are required to file UK corporation tax returns, the new ICTS requirements should be considered.

What type of information needs to be reported?

The ICTS is expected to require prescribed factual information for each reportable category of cross-border controlled transaction or permanent establishment dealing. For professional services businesses, the most relevant categories are likely to be services, financing and intellectual property:

• Services: Firms should expect to identify the nature of the service, the overseas counterparty and jurisdiction, and the accounting income or expense. The return is also expected to capture the transfer pricing method and relevant pricing outcome, together with information supporting a cost-based charge, such as the cost base, allocation key and mark-up. This may apply to management, administrative, technology, finance, HR, marketing and other support services including the provision of personnel provided through service companies, overseas offices or permanent establishments;
• Financing: Loans and other financing arrangements should be reported with the lender and borrower jurisdictions, the principal amount or relevant balance, and the interest income or expense. The filing is also expected to include the transfer pricing method and relevant financing terms or pricing metrics. Professional services groups should consider loans between partnerships, service companies and overseas offices, as well as cash pooling, guarantees and other financial support where applicable; and
• Intellectual property: Although less common, this area is becoming potentially more important as professional services firms adopt greater use of technology including AI. Any charge for the use or transfer of intellectual property should be reported by reference to the type of asset or right involved, the relevant counterparty and jurisdiction, and the associated income or expense. The filing is also expected to identify the transfer pricing method and pricing outcome. For professional services groups, this could include payments for brands, trade names, proprietary methodologies, software, know-how or other centrally owned rights.

Why does this matter?

Senior HMRC officials have indicated that the ICTS will enable HMRC to scale up and improve the quality of their risk assessment of transfer pricing compliance. The cost of non-compliance with UK transfer pricing rules has never been higher with penalties for careless behaviour more strictly enforced, interest rates on late paid tax running at close to 8 percent and significant resource implications for businesses selected for audit by HMRC.

Professional services groups do not always hold the information needed to complete the ICTS centrally. Data may be difficult to obtain, and management charges and partner-related allocations may be recorded outside standard intercompany processes. ICTS data could therefore expose inconsistencies between agreements, transfer pricing policies, local files, statutory accounts and tax returns. HMRC will be better placed, using data analytics, to compare movements across the group and identify potential industry outliers.

What needs to happen?

HMRC have indicated they expect to publish the final specifications for the ICTS during the autumn (i.e. before the end of 2026) to allow businesses time to understand the requirements ahead of the start of the first reporting period in 2027. However, for many businesses there will only be a short window of opportunity to get to grips with the ICTS. Three key tasks should be prioritised:

• Assess readiness and data capabilities: Map the entities and transactions likely to be reportable, identify where the required data is held and test whether finance systems can produce it accurately and consistently;
• Evaluate transfer pricing policies: Review whether pricing methods, cost bases, allocation keys and financing terms remain appropriate and are applied consistently across entities and jurisdictions; and
• Strengthen documentation and narrative: Reconcile the proposed ICTS disclosures with agreements, local files, statutory accounts and tax returns, and prepare clear explanations for any differences or year-on-year movements.

For further information please speak to the authors or your usual KPMG in the UK contact.

For further information please contact:

• Katie Illman
• Graham Poole