What Budget announcements are affecting international businesses?

 Transfer pricing – good news for smaller businesses, not so good for larger ones:

HMRC have confirmed they will not reduce the threshold for the small and medium sized enterprise (“SME”) exemption from the UK’s main transfer pricing rules. This is welcome, as it does not push an additional administrative burden onto smaller businesses. However, such businesses may still need to prepare documentation in certain cases; for example, because they are transacting with a connected party in a “non-qualifying” territory, or in a country with a lower or no SME exemption.

However the transfer pricing requirements for larger businesses are expected to increase. For accounting periods beginning on or after 1 January 2027 it is expected an “International Controlled Transactions Schedule” (“ICTS”) will need to be filed. This will contain specific information about cross-border related party transactions, with the aim of allowing HMRC to better assess transfer pricing risk and target enquiries accordingly. This is a move away from the UK’s “file and defend” approach, to an annual filing requirement already present in many other countries.

Permanent establishment – increased risk where sales activity undertaken in the UK:

Following a period of consultation, HMRC intend to align the UK’s domestic definition of permanent establishment fully with that of the OECD.  In particular, this will lower the threshold for creating a dependent agent permanent establishment in the UK. Overseas companies with personnel undertaking sales activity in the UK in particular will need to be mindful of this moving forward.