Join us on Nov 19 & 20 for the Thought Leader Global Corporate Tax Strategies & Experiences Conference
In this week’s transfer pricing update, we turn to the United Kingdom, where HM Revenue & Customs (HMRC)—the UK’s primary tax authority—has released guidance clarifying how it intends to apply the arm’s-length range when reviewing controlled transactions. Under the arm’s length principle, related-party dealings must reflect prices that unrelated parties would agree under comparable market conditions. HMRC’s latest interpretation reinforces this standard by confirming that when a multinational enterprise falls outside the arm’s-length range, the authority will typically adjust results to the median.
This shift affects intercompany transactions, benchmarking studies, and how pricing methods are applied under UK transfer pricing regulations.
Benchmarking under most transfer pricing methods—such as TNMM, Cost-Plus, or Resale Price—produces an arm’s-length range rather than a single value. Historically, many tax jurisdictions have offered flexibility: taxpayers could argue for a point within the range that best aligned with their functions, assets and risks or industry expectations. HMRC’s update changes that dynamic. If a company’s tested result from goods and services transactions lies outside the interquartile range, the UK will generally resolve the issue by placing the company at the median of the range.
This removes ambiguity and signals a more structured approach to party transactions involving UK entities.
HMRC’s interpretation highlights three prevailing philosophies across international tax systems:
Favored by the United States under Section 482 and increasingly by European jurisdictions like Germany and Denmark. The UK now joins this group, meaning some of the world’s largest multinational corporations are operating under harmonized expectations.
Some authorities evaluate each controlled transaction individually without obliging a specific point—allowing negotiation depending on business realities.
A minority of countries adjust results to whichever acceptable quartile benefits the taxpayer more. This approach, though taxpayer-friendly, is increasingly uncommon as regulators emphasize consistency.
The now-abandoned EU Transfer Pricing Directive also proposed mandatory median adjustments, underscoring the trend—even though Member States could not reach consensus.
HMRC argues that benchmarking sets reflect businesses with varying operational models and risk profiles. Outliers can distort outcomes, and selecting the median offers consistency across all transfer pricing method applications. For multinational enterprises, this means:
As enforcement tightens globally, companies whose profits shifted outside the arm’s-length range should expect closer scrutiny.
Companies operating across several tax jurisdictions—particularly those with UK entities—must revisit their intercompany transactions involving goods and services, financing, IP licensing, and shared services. HMRC’s preference for the median means:
Failure to do so increases exposure to adjustments, penalties, and double taxation.
As transfer pricing regulations across global tax systems become more structured, companies need stronger operational processes. This includes tracking intercompany transactions centrally, aligning policies across entities, and ensuring documentation is consistent with OECD guidance.
Reptune enables organisations to manage this complexity through a unified workflow. By integrating benchmark data, automating FAR analysis, and producing compliant Master File and Local File outputs, the platform gives tax teams visibility over whether their pricing aligns with the arm’s length principle—including how results compare across quartiles and the median. With automated testing and enhanced transparency, multinationals can reduce transfer pricing risk and maintain compliance with evolving tax authority expectations.
HMRC’s adoption of the median signals a shift toward greater predictability and tighter enforcement. For multinational corporations, it underscores the need for high-quality benchmarking, strong documentation, and proactive management of intercompany transactions. As countries continue aligning their transfer pricing regulations with OECD standards, businesses must strengthen both their analytical frameworks and their compliance infrastructure to remain audit-ready.
