HMRC consults on new International Controlled Transactions Schedule (ICTS)

The consultation sets out draft regulations, a proposed HMRC notice, and an illustrative reporting template.  

As this remains a consultation, the proposals are not yet final. The scope of the ICTS, the reporting template, materiality thresholds, and certain data requirements may change following stakeholder feedback before the regime is finalised. 

Scope: who and what is in scope 

The ICTS will apply to businesses within the scope of UK transfer pricing and permanent establishment rules, including UK-headed multinational groups, UK subsidiaries of overseas groups and UK permanent establishments of non-resident companies.  It will also capture transactions between UK companies and their overseas permanent establishments.  

Small and medium-sized enterprises (SMEs) are expected to remain outside the regime, meaning the primary impact will be on mid-sized and larger multinational groups with cross-border activity. For UK transfer pricing purposes, an enterprise is generally regarded as an SME where it has fewer than 250 employees globally and either global consolidated annual turnover not exceeding €50 million or gross assets not exceeding €43 million. 

The consultation also considers the role of materiality thresholds, both at an aggregate level and individual transaction categories. These thresholds will be important in determining the practical scope of the regime and remain an area where HMRC is seeking stakeholder input. 

In terms of transactions, ICTS is expected to apply broadly across goods, services, intellectual property, financing arrangements and business restructurings, reflecting the areas where cross-border profit allocation risks are most significant.  Domestic-only transactions are not expected to fall within scope.  

Nature of the information required 

The draft template indicates that HMRC is seeking granular and highly structured data. A key design feature is the degree of segmentation required. Transactions will need to include details on counterparties, jurisdictions, transaction types, pricing methodologies, and financial outcomes. 

This has direct implications for transfer pricing analysis. ICTS will provide HMRC with visibility over actual financial outcomes, allowing comparisons across years and entities. The level of standardisation proposed would also make it easier for HMRC to identify anomalies, outliers and inconsistencies across taxpayers. 

Current enquiry landscape 

Recent HMRC statistics highlight the challenges ICTS is seeking to address. Transfer pricing enquiries remain relatively limited in number but are prolonged and resource-intensive, with an average duration of around 41 months.  At the same time, transfer pricing yield has risen significantly, reaching approximately £3.4 billion in 2024–25. 

This reflects a model focused on fewer, high-value, and complex cases, often involving extensive information gathering and multi-year engagement. 

How ICTS is expected to change enquiries 

ICTS is designed to change this dynamic by providing HMRC with transaction-level data across the population of in-scope taxpayers. HMRC’s objective is to enable automated risk assessment at scale, allowing transfer pricing risks to be identified earlier and with greater precision.  This is intended to improve how enquiries are targeted and, over time, reduce their duration by focusing resources on higher-risk cases from the outset. This should allow HMRC to identify risks earlier and reduce reliance on extensive information requests at the outset of an enquiry. 

Over time, this is expected to lead to more targeted enquiries, focusing on outliers and specific risk indicators. For lower-risk businesses, this may reduce both the likelihood and duration of enquiries. For higher-risk cases, enquiries are likely to become more focused and data-driven, with faster progression to technical issues. 

Compliance, systems and governance 

The consultation confirms that ICTS will be implemented through a digital reporting solution, with HMRC intending to work with software providers on the final design.  

Businesses will need to ensure that they can extract, validate, and report transaction-level data consistently. This places increased emphasis on alignment between finance systems and tax reporting. 

Although the penalty framework is not yet finalised, the integration of ICTS into tax reporting suggests that existing compliance standards on accuracy and completeness will apply, increasing the need for robust processes. 

The regime also reinforces the need for ongoing monitoring of outcomes, rather than reliance on point-in-time analysis. Variations from benchmark ranges or inconsistencies across jurisdictions are more likely to trigger HMRC attention at an earlier stage. 

At an operational level, ICTS will require closer collaboration between tax, finance and IT functions, as well as potential investment in systems and processes to support data extraction and reporting. 

Practical considerations – When? 

While implementation is currently expected for FY starting after 1st of January 2027, businesses should begin assessing readiness now given the potentially significant systems and data implications.

Key priorities include assessing whether transaction-level data can be captured in a structured format, reviewing consistency between reporting and transfer pricing documentation, and evaluating whether current approaches to aggregation and netting remain sustainable. 

Early engagement with finance and IT teams will be critical, particularly where data is not currently captured at the required level of detail. Businesses should also review areas of higher risk, such as financing and IP arrangements, where outcomes may be more closely scrutinised under a data-driven model.

Conclusion 

The ICTS represents a fundamental shift in HMRC’s approach to transfer pricing compliance. Against a backdrop of lengthy enquiries averaging over three years and significant tax yield, HMRC is moving towards earlier, data-driven intervention.  

Those that invest early in systems, governance, and data integrity are likely to benefit from a smoother compliance experience. Those that do not may find that enquiries, while more targeted, become faster-moving and more difficult to manage in practice. 

HMRC is seeking feedback on a number of important design features, including reporting thresholds and the practical operation of the regime. Businesses that may be affected should consider the potential impact on their transfer pricing governance, systems and compliance processes. If you would like to discuss the consultation or assess how the proposed ICTS could affect your organisation, please feel free to contact us.