STOTLAND | GLOBAL TP MONITOR A weekly Review of Global Transfer Pricing Developments Issue No. 03 | October 2, 2026

The principal development in this week’s Global TP Monitor comes from the United Kingdom, where HM Revenue & Customs has substantially expanded its International Manual to explain the practical application of the UK’s reformed transfer pricing framework and the new Unassessed Transfer Pricing Profits (UTPP) regime.

The guidance is especially important for financial transactions. It sharpens the distinction between the pricing benefit created by a guarantee and the borrower’s underlying debt capacity, while UTPP brings the former diverted-profits concept directly into the corporation-tax and transfer-pricing framework—with an additional six percentage points potentially attaching to qualifying unassessed TP profits.

II. Legislation & Regulatory Developments

1. United Kingdom — HMRC Guidance on Reformed Transfer Pricing Rules

Jurisdiction: United Kingdom

Issuing authority: HM Revenue & Customs

Publication / update date: 29 September 2026

Status: Official HMRC guidance

Effective date: Generally, for chargeable periods beginning on or after 1 January 2026, subject to specific transitional provisions

Source: HMRC International Manual — INTM414000 series

Importance: High | Action: Action required

Topic: Transfer pricing reform | Financial transactions | Guarantees | Participation condition | Intangibles | UK-to-UK transactions | OECD alignment

What changed

HMRC’s updated International Manual explains a broad package of reforms to the UK transfer pricing rules, covering the participation condition, intangibles, Commissioners’ sanctions, UK-to-UK transfer pricing, interpretation in accordance with OECD principles and financial transactions. The reforms generally apply for chargeable periods beginning on or after 1 January 2026, subject to specific transitional provisions.

The financial-transactions guidance is particularly significant. Former Sections 152 and 153 of TIOPA 2010 have been repealed and the revised framework is intended to align the UK rules more closely with Chapter X of the 2022 OECD Transfer Pricing Guidelines.

Guarantees: pricing benefit versus debt capacity

The revised framework permits the effects of intra-group guarantees to be taken into account when pricing financial arrangements, but new Section 153A imposes an important limitation. Where a guarantee increases the amount a borrower can obtain beyond the amount an independent lender would have advanced without that guarantee, the guarantee is treated as non-arm’s-length in respect of that excess borrowing.

The practical consequence is that a guarantee may improve an arm’s-length interest rate or other financing terms, but it cannot be used to manufacture an arm’s-length debt quantum that the borrower could not independently support. A guarantee fee attributable to excess borrowing therefore cannot generally create an arm’s-length deduction.

HMRC also emphasizes that an explicit guarantee does not automatically create a pricing benefit. The analysis must identify its actual effect on the interest rate, borrowing capacity and other terms of the financing.

Documentation implications

For UK financing and guarantee studies, the analysis should now distinguish clearly between: (i) the amount the borrower could have obtained independently; (ii) any improvement in pricing or other terms attributable to the guarantee; and (iii) any additional debt capacity created solely by the guarantee.

That distinction makes borrower debt-capacity analysis materially more important. A guarantee-fee study that focuses only on the spread benefit without first addressing the arm’s-length quantum of debt may leave the most important question unanswered.

Commencement

For borrowing occurring on or after 1 January 2026, the new rules apply to chargeable periods ending on or after that date. For borrowing originating before 1 January 2026, the rules generally apply to periods commencing on or after 1 January 2028, unless the taxpayer elects for earlier application.

Why it matters

The guidance moves the UK financial-transactions reforms from statutory language into a more operational framework. For groups relying on parental or affiliate guarantees, the immediate question is no longer simply what fee an independent guarantor might charge. The analysis must first establish what the borrower could have borrowed on a standalone basis and only then identify the incremental economic effect of the guarantee.

Practitioner’s note: A guarantee can improve the price of debt. It cannot, by itself, turn debt that would never have been advanced at arm’s length into arm’s-length borrowing. It is important to note that this is Official HMRC guidance, which essentially attempts to challenge the credibility of an intercompany charge levied by a party to another for the potential assumption of real financial risk on the part of the guaranteeing entity. The position taken on by the HMRC is a candid one to an extent as it generally calls for a more careful examination of the merits of controlled financial transactions and more particularly covenants undertaken concerning financial guarantees. And, their focal point is one of debt capacity and demonstrating Bonafide aspects of debts / financial guarantees.

The HMRC position will likely be tested in case law at some point moving forward due to certain blanketing aspects of their position that challenge the very characterization of intercompany financial dealings and covenants. As always, there is also the foreign tax jurisdiction (which may or may not be a bilateral treaty county with the UK), that would likely assert much to the contrary on the income side in their respective jurisdictions.

In the meantime, for UK financing work, debt capacity and guarantee pricing now need to be kept very deliberately in separate analytical boxes.

2. United Kingdom — Unassessed Transfer Pricing Profits (UTPP) Guidance

Jurisdiction: United Kingdom

Issuing authority: HM Revenue & Customs

Publication / update date: 29 September 2026

Status: Official HMRC guidance

Effective date: Accounting periods beginning on or after 1 January 2026

Source: HMRC International Manual — INTM489000 series

Importance: High | Action: Monitor / Relevant

Topic: Transfer pricing controversy | Additional corporation-tax charge | Tax Design Condition

What changed

HMRC has also published detailed operational guidance on the new Unassessed Transfer Pricing Profits regime, which replaces Diverted Profits Tax for accounting periods beginning on or after 1 January 2026. UTPP sits within the corporation-tax framework and extends the UK transfer pricing rules rather than operating as a separate tax.

HMRC may assess a company under UTPP where there are unassessed transfer pricing profits and the statutory gateways are satisfied, including an effective tax mismatch outcome and the Tax Design Condition. The latter asks, in broad terms, whether it is reasonable to assume that the relevant transaction, series of transactions or related arrangements were structured with a design to reduce UK tax.

The rate

The UTPP rate is calculated as the underlying corporation-tax rate plus six percentage points. For a company subject to the ordinary 25% corporation-tax rate, that generally produces a 31% UTPP rate. The effective rate can be higher where additional corporation-tax-related charges form part of the underlying rate calculation, with HMRC’s guidance addressing circumstances such as the banking surcharge.

Documentation and controversy implications

For groups with material UK transfer pricing positions, contemporaneous documentation should support not only the arm’s-length outcome but also the commercial and non-tax rationale for the transaction structure. That second strand becomes particularly important where HMRC could seek to invoke the Tax Design Condition.

The assessment mechanism is also distinctive. UTPP is not self-assessed and is not simply imposed through the ordinary corporation-tax enquiry mechanism. HMRC’s guidance describes a dedicated statutory process involving notices, taxpayer representations and assessment procedures.

Why it matters

The additional six-percentage-point charge materially increases the downside associated with unresolved UK transfer pricing positions. More broadly, replacing DPT with UTPP brings the former diverted-profits concept much closer to the ordinary transfer-pricing framework and may make transaction delineation, commercial rationale and contemporaneous evidence even more important in controversy.

The regime is particularly relevant to restructurings, IP arrangements, cross-border services and other structures where HMRC may contend that profits have remained outside the UK because the actual pricing does not reflect the arm’s-length result.

Practitioner’s note: UTPP changes the economics of a UK TP dispute. The issue is no longer merely whether HMRC can sustain an adjustment; where the statutory gateways are met, the same disputed profits may carry an additional six percentage points of corporation tax. That makes early identification and documentation of higher-risk positions considerably more valuable.

Overall Takeaway

This week’s UK guidance is significant because it translates the 2026 transfer pricing reforms into HMRC’s practical operating framework. Two points stand out.

First, financial guarantees can improve arm’s-length pricing, but they cannot manufacture arm’s-length debt capacity. UK financing analyses should therefore separate the borrower’s standalone borrowing capacity from the incremental pricing benefit attributable to a guarantee.

Second, UTPP materially increases controversy exposure by potentially applying an additional six percentage points of corporation tax to qualifying unassessed transfer pricing profits. The commercial rationale for a structure therefore matters alongside the economic support for the transfer price itself.

For current client work involving UK entities, financing arrangements and material cross-border transfer pricing positions, the new HMRC guidance should now be incorporated into both the analytical framework and the documentation approach.

Sources: HMRC International Manual, INTM414010, INTM414410, INTM489115–INTM489155 and INTM489205 et seq. (updated 29 September 2026).