Expansion and rebranding of the Profit Diversion Compliance Facility

The former Profit Diversion Compliance Facility (PDCF) has been expanded and rebranded as the Transfer Pricing & Profit Diversion Compliance Facility (TPPDCF). This development reflects a significant broadening in scope, moving beyond its original focus on diverted profits tax (DPT) to encompass all material non-financial transfer pricing risks. This change also aligns with the introduction of the UTPP, which applies for accounting periods beginning on or after 1 January 2026 and effectively replaces DPT for new periods.

The purpose of the enhanced facility is to encourage multinational enterprises to make voluntary disclosures of transfer pricing risks. It provides a structured framework for taxpayers to reassess their transfer pricing policies, prepare a comprehensive, fact-based report, and propose the settlement of any additional tax liabilities. In return, the facility offers a number of important benefits, including the avoidance of a formal HMRC investigation where full disclosure is made, a faster resolution process (with a targeted timeline of approximately three months), reduced penalties on the basis that disclosures are treated as unprompted, and greater control over the presentation of evidence and methodological choices.

Introduction of UTPP and transition from DPT

One of the most significant structural changes introduced in the updated guidance is the replacement of the DPT regime with the UTPP charge. While DPT continues to apply for accounting periods ending on or before 31 December 2025, UTPP becomes effective from 1 January 2026 onwards.

Although both regimes are designed to counter profit diversion and ensure that profits are aligned with economic substance, they differ in their operation and scope. DPT operated as a separate tax regime with a standalone calculation and is primarily targeted as an anti-avoidance measure. By contrast, UTPP is integrated into the corporation tax system and functions as a broader transfer pricing enforcement mechanism, with adjustments made within the corporate tax framework, typically at higher tax rate.

Benefits of TPPDCF

TPPPDCF provides MNEs with a structured and collaborative mechanism to regularise their UK tax position without formal investigation. By making a full and accurate disclosure, businesses can achieve greater certainty for past periods and obtain a lower risk outcome for future arrangements.

The facility also offers practical advantages, including potential mitigation of penalties through unprompted disclosure, a more efficient resolution process with HMRC, and the opportunity to engage proactively with HMRC to agree an appropriate transfer pricing position.

Key changes

• There is a broader target population for the PDCF. Previously, only profit diversion arrangements were in scope. Now, HMRC clarifies that the facility applies to (i) arrangements of the sort targeted by the UTPP, (ii) any other arrangements that may significantly reduce UK profits below the correct arm’s length amount, and (iii) arrangements involving a profit attribution analysis applied to a permanent establishment.
• HMRC has expanded its framework for identifying high risk transfer pricing arrangements, particularly in relation to profit diversion. The enhanced facility explicitly refers to the following guidance to identify high risk transfer pricing arrangements: INTM441000 onwards (Transactions and Structures), INTM482000 onwards (Risk Assessment), and INTM489400 (Unassessed Transfer Pricing Profits – Examples), together with Guidelines for Compliance 7 on common transfer pricing risks.
• HMRC has added a new section on co operative compliance, emphasising that it prefers MNEs to fully disclose significant tax uncertainties or inaccuracies and to work co operatively and proactively with it to resolve any tax uncertainties and risks. It states that if there is considerable difficulty in determining the method to use, an APA may be more appropriate.
• Finally, the updated guidance highlights the increasing integration of transfer pricing analysis with other areas of the UK tax framework. These include the corporate interest restriction rules (CIR), withholding tax (WHT), permanent establishment (PE) rules, controlled foreign company (CFC) provisions, hybrid mismatch rules, and the uncertain tax treatment (UTT) regime. This reflects a more holistic approach by HMRC, whereby transfer pricing is no longer assessed in isolation but rather as part of a broader, interconnected tax risk landscape

Conclusion

The update to the PDCF - reflecting the UTPP and incorporating additional transfer pricing risk areas - clarifies the facility’s purpose and role in the transition to UTPP. The timing of this update, alongside the technical consultation for the International Controlled Transaction Schedule, is significant. HMRC expects taxpayers to supply transfer pricing information for targeted risk assessment, while also promoting the benefits of proactive engagement through the TPPDCF, including greater control and unprompted penalty disclosure. HMRC’s historic survey highlighted the success of the PDCF facility, underpinning its continued relevance. As transfer pricing data is submitted and analysed through the ICTS, the TPPDCF is likely to become an increasingly important tool for both taxpayers and HMRC, as it will enhance visibility of incorrect implementation of transfer pricing policies or arrangements that do not adhere to the OECD Guidelines.