New International Controlled Transactions filings confirmed in Budget

As discussed in an earlier article, the ICTS would be a schedule, in a prescribed format, filed annually along with existing tax return requirements, in which in-scope entities would summarise their reportable cross-border transactions. The requirements would apply to companies of all sizes that are within the scope of the UK transfer pricing rules and would include dealings of a UK permanent establishment (PE) of a non-resident company and dealings of a UK resident company with its overseas PEs.

The ICTS is aimed at enabling automated data-led risk assessment to improve the targeting of HMRC enquiry activity, promoting upstream compliance and reducing the length of transfer pricing enquiries. Although an example of the data required was provided in Excel form for the purposes of the consultation, HMRC will develop an interface to allow the data to be submitted. This in turn will mean systems development by the taxpayer to allow this granular data to be submitted securely and accurately. 

The Government consulted on the ICTS previously and alongside the Budget published a consultation outcome and summary of stakeholder feedback received. The Government’s response to the consultation does not indicate any major changes to the original proposed ICTS schema but, as noted above, further technical consultation is planned. Areas needing clarification include what data to report when pricing outcomes deviate from policy and how to report transactions that are covered by complex arrangements like profit splits. Respondents to the consultation have also suggested ways to reduce the compliance burden, such as excluding low value-adding intra-group services.

Notably, the Government has confirmed it is scrapping separate proposed changes to the exemption for small and medium-sized enterprises (SMEs) from UK transfer pricing rules. Originally, a key rationale for the ICTS was to help HMRC risk-assess medium-sized businesses that would have come into scope under a narrower SME exemption. However, the decision not to narrow the exemption has been taken to avoid imposing additional administrative burdens on SMEs in line with the Government’s broader industrial strategy to back firms to start, scale and stay in the UK.

• Automated risk assessment: HMRC will use ICTS reporting to enable automated risk assessment of multinational transfer pricing at scale, with HMRC estimating £6 million of investment in supporting technology;
  
• Consistency checks: For large multinationals already subject to master file and local file requirements, HMRC will check for consistency between ICTS data and transfer pricing documentation as well as period on period trends which may indicate business change;
  
• Broader risk identification: ICTS may help HMRC spot other cross-border risks, such as withholding tax compliance;
  
• Increased resources: HMRC are recruiting more international tax specialists to support enquiry activity;
  
• Revenue impact: The Government expects the ICTS to have a positive exchequer impact of £875 million cumulatively by March 2031;
  
• Compliance challenge: Collecting the required data will be a significant undertaking, especially as the UK’s requirements are not harmonised with existing global reporting standards; and
  
• Technology opportunity: This is a chance for businesses to integrate technology, improve data management and enhance compliance accuracy.

Although the first filing dates are in 2028, early preparation is key. We recommend that businesses take the following practical steps:

• Project planning: Identify dependencies and align ICTS compliance with other ongoing projects for efficient implementation. Given the existing burdens on in-house IT functions, it will be important for this to be on their radar and included in budgets, forecasts and work planning;
• Data collection and mapping: Integrate ICTS requirements into broader tax compliance automation efforts. Improving data quality now will pay dividends later;
• Data analysis: Proactively analyse ICTS data on a multi-period basis alongside related information (such as transfer pricing documentation and Country by Country Reporting (CbCR) data) to anticipate HMRC queries and identify risk areas;
• Remediation: Address any issues in transfer pricing policies before the first ICTS reporting period to minimise the risk of resource-intensive enquiries;
• Advance Pricing Agreement strategy: Consider Advance Pricing Agreements for complex transactions, as these can be excluded from ICTS reporting;
• Business risk review: For large businesses, ensure ICTS filings support a low-risk HMRC profile and align with your overall compliance strategy; and
• Input into technical consultation: There is also an opportunity to give feedback on the final ICTS requirements through the planned technical consultation next year—either directly or via your advisors.

If you’d like to discuss how these changes might affect your business, or how KPMG can support your ICTS readiness, please get in touch with your usual KPMG in the UK contact.