HMRC’s new and updated Transfer Pricing & Profit Diversion Compliance Facility

The updated framework reflects the introduction of the Unassessed Transfer Pricing Profits (UTPP) regime, which replaces Diverted Profits Tax (DPT) for accounting periods commencing on or after 1 January 2026, and significantly broadens the scope of the facility to include a wider range of transfer pricing risks.

For taxpayers, the TP&PDCF is no longer limited to perceived ‘profit diversion’ structures. Instead, it functions as a comprehensive voluntary disclosure mechanism through which multinational groups can review historical arrangements, identify areas of non-compliance with the arm’s length principle, and proactively correct their UK corporation tax position. The facility is positioned as an alternative to traditional HMRC enquiry processes, offering procedural advantages and the possibility of reduced penalties where disclosure is complete and unprompted.

Background to the PDCF

The original Profit Diversion Compliance Facility was introduced in 2019 as part of HMRC’s response to perceived base erosion risks associated with cross-border arrangements used by multinational enterprises, to encourage multinational enterprises (MNEs) using arrangements targeted by DPT to give them the opportunity to bring their UK tax affairs up to date.

Historically, HMRC identified cases through risk profiling and issued targeted communications, in the form of nudge letters, encouraging businesses to consider voluntary disclosure via the facility. The design of the PDCF was intended to promote behavioural change by incentivising early self-correction rather than reliance on lengthy and resource-intensive enquiries. Over time, the facility proved effective in facilitating settlements and improving taxpayer compliance.

Since its introduction, HMRC has received positive feedback from both taxpayers and tax advisers who have been involved in the process, on the use and impact of the facility. This facility has therefore been updated and renamed the TP&PDCF to reflect the following:

• the introduction of the UTPP legislation^[1] which replaces DPT, applying to accounting periods beginning on or after 1 January 2026, and
• to expand the facility’s scope to include all significant non-financial transfer pricing risks.

Unlike DPT, which operated as a standalone tax, UTPP is embedded within the corporation tax framework and operates by identifying profits that should have been returned under existing transfer pricing rules. It is therefore more integrated with mainstream compliance processes and reinforces HMRC’s broader strategy of aligning taxable profits with underlying economic activity.

Main changes introduced to PDCF in June 2026

The updated TP&PDCF incorporates several significant developments that materially affect its application and relevance to taxpayers:

• Expanded scope of application: The facility now applies to all material non-financial transfer pricing risks, including arrangements that typically involve reducing UK profits by under-rewarding UK activity and over-rewarding activity based in an overseas entity where its profits are taxed at lower rates or not taxed at all. This includes (but is not limited to) scenarios involving intra-group services, intellectual property, supply chain structuring, and permanent establishment profit attribution.
• Integration with UTPP: The transition from DPT to UTPP shifts the conceptual framework from a deterrence-focused anti-avoidance tax to an embedded compliance mechanism within corporation tax. UTPP applies where profits that should have been recognised under transfer pricing rules have not been returned and certain conditions regarding tax mismatch and design intention are met, UTTP functions as a broader transfer pricing enforcement mechanism, with adjustments made within the corporate tax framework.
• Increased evidential expectations: HMRC has emphasised that disclosure reports must be supported by robust documentation, including functional analyses, value chain assessments, and reliable benchmarking. HMRC expect greater alignment with OECD Transfer Pricing Guidelines and HMRC’s detailed guidance on common transfer pricing risks in the GfC7 Help with common risks in transfer pricing approaches — GfC7 - GOV.UK (published 10 September 2024).
• Wider population in scope: The broader definition of TP&PDCF, to include all non-financial transfer pricing risks means that many groups that would not previously have considered the PDCF may now fall within its scope, even in the absence of overt profit diversion indicators.
• Enhanced focus on governance and data: The updated guidance reflects HMRC’s increasing reliance on data-driven risk assessment tools and highlights the importance of consistency between tax filings, transfer pricing documentation, and actual operational conduct.

How to enter the TP&PDCF

Entry into the TP&PDCF is a structured but taxpayer-driven process. While the facility is voluntary, it requires a high level of internal resources and technical analysis. The key stages are summarised as follows:

1. Preliminary risk assessment: Taxpayers should conduct an internal review of cross-border arrangements to identify potential deviations from arm’s length pricing or inconsistencies in implementation.
2. Registration: Where risks are identified, the taxpayer submits a formal notification to HMRC. In practice, some taxpayers may engage informally with HMRC in advance to assess the suitability of the facility.
3. Scoping and methodology discussion: Following registration, an initial meeting is typically held with HMRC to agree on the scope of the review and the analytical approach to be adopted.
4. Internal investigation and report preparation: The taxpayer undertakes a detailed analysis of relevant transactions, including economic analysis and supporting documentation. This culminates in a comprehensive disclosure report setting out the facts, analysis, and proposed adjustments (to be submitted to HMRC within six months of the registration meeting).
5. HMRC review and interaction: HMRC reviews the report (within three months of the report being submitted) and engages with the taxpayer to challenge assumptions, request further information, and refine conclusions.
6. Agreement and settlement: Where HMRC accepts the analysis (in whole or in part), the taxpayer finalises its proposal and settles any additional tax liabilities, potentially followed by further processes such as mutual agreement procedures to eliminate double taxation. The updated guidance provides further commentary on the potential for businesses to pursue MAPs and advance pricing agreements (APAs) on the outcome of disclosures made under the facility, highlighting HMRC's continued willingness to facilitate certainty through cooperative engagement.

HMRC will issue further rounds of TP&PDCF letters to accompany the launch of the expanded TP&PDCF.

HMRC will assess disclosure reports against the same standard of evidence and accuracy as they would in an HMRC-led inquiry. Making a TP&PDCF disclosure will therefore continue to be an extensive exercise for MNEs that register.

From a procedural perspective, the TP&PDCF offers greater control over timing and evidence gathering compared to a formal enquiry, but it also requires a rigorous and transparent approach.

The expansion of the TP&PDCF represents a clear signal of HMRC’s strategic direction in international tax compliance. By integrating the facility with the UTPP regime and broadening its applicability, HMRC has created a mechanism that encourages earlier, more comprehensive engagement by taxpayers on transfer pricing risks.

For taxpayers, the facility provides an opportunity to manage risk proactively, secure greater certainty over historical positions, and mitigate potential penalties. However, participation is not without complexity. The level of analysis required, combined with the need for high-quality documentation and alignment with OECD principles, means that entry into the TP&PDCF will continue to be an extensive exercise for businesses.

Areas for businesses to consider 

In light of the updated and broader scope of the TP&PDDCF and HMRC’s continued focus on increased transparency, enhanced HMRC data capabilities, and evolving international tax standards, taxpayers should ensure that their transfer pricing policies are both technically robust and operationally implemented. Where material uncertainties exist, the TP&PDCF offers a structured pathway to resolution that may be preferable to reactive engagement through an HMRC enquiry.

Multinationals should undertake a review of:

• Transfer pricing policies and cross border arrangements against HMRC’s Help with common risks in transfer pricing approaches and TP&PDCF guidance.
• Data sources, documentation and evidence to be audit and ICTS-ready (see our separate update on ICTS).
• Identify any potential historical exposure.

[1] TIOPA2010/Part4A