Advance tax certainty for major projects

As part of the Spring Statement, and in a further nod to the need to kickstart growth in the UK economy, HM Treasury has published a consultation on "Advance tax certainty for major projects". The proposal is that the government will introduce a new process for giving major investment projects increased tax certainty in advance to further improve the UK's position as an advantageous investment location. The proposal would appear to be a more formal version of the existing tax support provided by HMRC to overseas businesses investing in the UK, but expanded to projects that are not limited to those involving inward investment from outside the UK.

The consultation also announces the government's intention to publish an updated Statement of Practice setting out a policy and conditions for entering into APAs dealing with the transfer pricing treatment of cost contribution arrangements between group companies sharing the costs and benefits of developing assets such as IP.

Background

As recognised in the Corporate Tax Roadmap, tax certainty and a stable and competitive tax regime are some of the factors most valued by businesses. The government now recognises that it could go further for the "very largest and most innovative investment projects, given their scale, complexity and range of tax implications". It is therefore now consulting on a dedicated service, tailored to these types of projects, which will provide statutory certainty over how the tax rules will be applied to a project if it proceeds as planned.

Eligibility

The government proposes that the process should be available to corporate entities directly undertaking major investment projects, including those that do not initially have a UK presence but will if the investment proceeds. These entities will need to be subject to corporation tax.

There will need to be a quantitative threshold based on the project spend on fixed or intangible assets. There is recognition that the threshold be set at a level which ensures that HMRC can deal with the number of applications. Whilst HMRC will recruit "new highly skilled tax professionals" to deliver the process, the government would expect that the process would deal with only dozens, rather than hundreds, of projects per year. As such, each project is likely to have a qualifying spend in the hundreds of millions.

There is however recognition that a high financial threshold may not capture some projects of national or strategic importance or which are highly impactful in their sector. Responses are invited on how such projects might be captured. There will also need to be criteria to exclude abuse of the process, such as speculative applications and where tax avoidance is involved.

Scope

The proposal is that the process will be largely aimed at providing corporation tax certainty, but the government is open to responses that it should cover other taxes such as VAT, stamp taxes and employment taxes. However, it will not seek to duplicate or short-cut existing methods. So it would simply act as a gateway to applications for, for example, APAs dealing with transfer pricing uncertainty or a partial exemption special method for VAT.

An advance certainty clearance under the process would be a binding decision as to HMRC's application of the law to the facts. (Unlike some existing clearance processes, it would not require that there be genuine uncertainty as to the tax treatment.) This means that HMRC would not seek to change that treatment, except in specific circumstances. These might include where the key assumptions for the project are not met, or where changes in the law render the clearance obsolete. The consultation seeks responses on whether taxpayers should equally be bound by the agreed tax treatment and the circumstances under which HMRC might depart from the agreed treatment.

Process

The consultation sets out a proposed process for the obtaining of tax certainty, including early engagement meetings before any formal application, the need for a formal written application including technical analysis of the tax treatment on which clearance is sought, scoping meetings and the issue (and potential publication) of the clearance. If HMRC decide that an application does not meet the eligibility criteria and there would not be an appealable process (or at least a statutory one) for such a decision.

The government also proposes that, to ensure the benefits are available beyond the immediate beneficiaries, anonymised clearances should be published. Publication to a wider taxpayer audience could drive further tax certainty beyond the clearance process and the government is keen to consult on this aspect. Although other taxpayers may not rely on the clearance, publication provides potential benefits in helping to clarify HMRC's position, address legal interpretation uncertainty, and improve policy understanding and consistency. The consultation notes that many jurisdictions publish advance tax rulings in such an edited form, with delayed publication or redactions to protect sensitive information, including business details and commercially sensitive transactions. In most cases the business will review and agree the summary before publication, with some jurisdictions making publication a prerequisite of clearance consent.

The government proposes that a clearance should have a maximum five year length. Where projects extend beyond five years, then there would need to be a process for applying to renew the clearance when it expires.

The government is also considering whether it should charge for the service.

Cost contribution arrangements

In the Corporate Tax Roadmap, the government committed to reviewing the transfer pricing treatment of Cost Contribution Arrangements (CCAs). CCAs are contractual agreements between group companies to share the costs and benefits of developing assets such as intellectual property, as this is a complex area of transfer pricing where different interpretations of the international guidelines exist, increasing the risk of disputes and double taxation.

Following discussions, the government intends to offer clearance on the treatment of CCAs through Advance Pricing Agreements (APAs) using existing legislation. Unilateral APAs would provide certainty that CCAs will be respected as the framework for pricing CCA transactions. The government intends to publish an updated Statement of Practice which will detail the necessary conditions for granting such a clearance. The commerciality of the CCA and the expected profitability of the UK participant over its term will likely be factors in determining whether HMRC enters into an APA.

Comment

HMRC already offers a tax support service for overseas entities looking to make a significant (generally £30m or more) or strategic investment into the UK. The current proposal appears to be designed to expand this process beyond cases of inward investment and also put the process on a much more formal footing. Clearly there may be both benefits and disadvantages which arise from making the process more formal. It is also not clear whether the existing, less formal process will remain available for overseas businesses which do not qualify for the formal process (perhaps due to the financial threshold of the transaction).

The consultation will run until 17 June 2025 and comments should be submitted to advancetaxcertainty@hmtreasury.gov.uk. Once the consultation has closed, the government will then assess the responses and issue a formal response, including next steps. It is the government's intention to implement the new process in 2026, and it will lay any required legislation ahead of this, including primary legislation via a Finance Bill.