UK Transfer Pricing Gets an OECD Makeover

The OECD has released an updated Transfer Pricing Country Profile for the United Kingdom, confirming that the UK’s transfer pricing framework is closely aligned with the 2022 OECD Transfer Pricing Guidelines.

This isn’t just a technical update it signals a renewed international focus on cross-border compliance and the evidence required to demonstrate that related-party transactions are truly at arm’s length.

For UK companies trading abroad, particularly those with related entities in the UAE and other low-tax jurisdictions, this development has direct and practical implications.

1. The UK Is Now Closely Aligned with OECD 2022 Guidelines

The OECD’s updated country profile confirms that the UK has adopted the key elements of the 2022 OECD Transfer Pricing Guidelines within its domestic framework.

The most notable developments are the adoption of:

• Chapter X – Financial Transactions, and
• Updated guidance on Hard-to-Value Intangibles (HTVI)

This ensures HMRC’s interpretation of the arm’s length principle is now strongly consistent with the OECD’s latest global standard particularly in relation to intra-group loans, guarantees, and intangible asset arrangements.

2. Financial Transactions & Intangibles — Now Under the Microscope

The OECD update highlights two areas that now attract greater attention from tax authorities: financial arrangements between group companies and the treatment of intellectual property.

What’s changed

The UK’s framework now explicitly applies OECD principles to:

• Intra-group loans, guarantees, and cash-pooling
• Cost-contribution and funding structures
• IP ownership and licensing in low-tax jurisdictions

Businesses must be able to show:

• A clear commercial rationale for each intercompany transaction
• Credit-rating analysis and pricing models to support any intra-group financing
• Evidence that IP valuations and royalty rates reflect genuine market comparables

Example 1 : When the overseas entity supports the UK business

A UK trading company has a UAE consultancy within the group that offers strategic advice, manages brand IP, and provides short-term funding when required.

Under the OECD-aligned framework, each transaction must now stand on its own at arm’s length:

• The service fees must be supported by evidence of measurable value — for example, project deliverables, management input, or commercial outcomes.
• The loan must include a documented credit analysis, interest benchmarking, and repayment terms consistent with what an independent lender would require.
• The IP ownership must reflect genuine development and control, not simply a holding structure in a low-tax location.

Without this evidence, HMRC could adjust taxable profits or deny deductions, and double taxation may arise if the UAE entity’s income treatment differs.

Example 2: When the UK business provides services or IP abroad

Many UK companies export expertise, management support or intellectual property to overseas affiliates. For example, a UK consultancy or technology firm may charge a UAE group entity for management services, design support or the use of IP.

In these cases, the UK company must ensure that:

• The fees charged are supported by a defined cost base and arm’s-length profit margin.
• The scope of services is clearly documented and not duplicated by local teams.
• The royalty or licensing fees are benchmarked against comparable third-party arrangements.

Foreign tax authorities including the FTA in the UAE are increasingly challenging charges that lack substance or supporting analysis. This can lead to disallowed deductions or mismatched profit recognition across jurisdictions.

Why it matters

Both sides of a cross-border relationship the UK entity and the overseas affiliate now face heightened scrutiny.

Tax authorities are aligned on one point the arm’s length principle only holds if the pricing, functions and risks can be evidenced with credible documentation.

Intra-Group Services — Real Benefit, Not Box-Ticking

The OECD reiterates that intra-group services must deliver a real commercial benefit and be priced at arm’s length.

The simplified 5 percent cost-plus approach can still be used for low-value-adding services such as HR, IT or administrative support but only where eligibility and documentation are clearly demonstrated. Generic management charges without clear value, cost analysis or supporting evidence are now under greater challenge.

4. Areas of Increasing Scrutiny

Both the OECD and tax authorities are increasing their focus on how profits are allocated across borders. The key areas of attention include:

💸 Cross-border financing

Greater examination of intercompany loans, guarantees and treasury arrangements. Authorities expect clear loan agreements, evidence of credit assessment and interest rates that reflect market conditions.

💡 Intangible assets (IP)

Heightened scrutiny of intellectual property ownership, valuation and royalty flows. The entity earning the IP income must demonstrate control, development and economic substance.

🧾 Intra-group services

Review of management, support and advisory fees charged within groups. Only value-adding services with demonstrable benefit and a justifiable cost-plus margin are considered arm’s length.

📚 Documentation quality

Strong emphasis on the quality of transfer-pricing documentation. Authorities expect analysis showing how prices were determined and evidence that the arrangements make commercial sense.

In today’s environment, “arm’s length” needs evidence.

What UK Business Owners Should Do Now

For many UK businesses with overseas related entities particularly those connected with the UAE or other low tax jurisdictions, this is an opportunity to review how intercompany relationships are structured, priced and documented.

Key actions to consider:

✅ Review existing structures – Map out all cross-border transactions involving services, financing or IP to confirm they reflect current operations and risks.
✅ Update intercompany agreements – Ensure each agreement clearly defines scope, responsibilities and pricing terms that make commercial sense.
✅ Benchmark and test pricing – Support interest rates, margins and royalty rates with credible, independent data or analysis.
✅ Strengthen documentation – Record how each arrangement creates or supports value and why the pricing aligns with market behaviour.
✅ Plan ahead – Treat compliance as part of strategic decision-making, not a post-year-end task.

Taking these steps not only reduces the risk of transfer-pricing adjustments, penalties and double taxation it also builds confidence that group structures accurately reflect commercial reality.

Early action provides a stronger position if questions arise and helps avoid far greater complexity later.

⚖️ The Bottom Line

The OECD’s update confirms that the UK’s transfer-pricing rules are closely aligned with international standards, raising expectations for evidence and documentation in cross-border dealings.

If your business trades across borders or has related entities overseas, iCXO can help assess your current transfer-pricing compliance and documentation. Contact us for a confidential review or consultation.

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