UK Consultation on Advance Tax Clearance Service: Implications for Transfer Pricing in Large-Scale Innovative Investments

The HMRC has launched a consultation on an advance tax clearance service for large-scale investments. This process will provide statutory certainty regarding how the tax rules will be applied to a major project if it proceeds as planned. This will not mean exhaustively providing certainty on every tax implication, but rather allowing for a flexible, open discussion with the HMRC to identify areas where tax certainty would be of most value and could be appropriately provided within the project timelines. The consultation runs until June 17, 2025.

Who can benefit from this consultation?

The clearance will be available for corporate entities directly undertaking major investment projects, whether or not they have a UK presence.

What is the clearance threshold?

HMRC intends to establish a clear quantitative threshold to identify the largest and most significant projects. This threshold would be set in terms of the authorized project spend for major projects investing in fixed and intangible assets. The government anticipates initially setting a threshold that would entail dozens, rather than hundreds, of projects being serviced per year, each likely to entail qualifying expenditure in the hundreds of millions. Given the scale of investment required, the projects eligible for clearance would typically be multi-year efforts to plan and complete, limiting the benefits of this initiative to a narrow number of companies.

What taxes will the clearance involve?

Corporation Tax will be the principal tax for which investors can obtain advance certainty, given that entities making the largest investments in the UK fall within its scope. However, HMRC is open to exploring the case for expanding to other areas such as VAT, Stamp Taxes, and Employer Duties.

What will the clearance process be?

• Early engagement discussions (optional): the potential investors may opt by meeting with the HMRC to explore the clearance feasibility before committing resources.
• Clearance Submission. Applications will be required in writing, where applicants will set out technical analysis for opinion, including supporting information.
• Scoping Meeting (within 30 days of submission)
• Clearance Consideration. HMRC specialists will consider the case once the facts are established and may ask for clarification as required. The turnaround will be within 30 days.
• Clearance Issuance. Clearances will be issued in writing and will indicate whether HMRC agrees with the technical analysis included in the application, detailing the key facts and assumptions which must continue to be met for the clearance to apply. They will also specify the clearance duration, which is unlikely to exceed five years before renewal is required.

What will be the economic impact of the clearance?

The primary economic purpose behind the UK’s launch of this tax incentive is to stimulate long-term productive investment in an increasingly competitive global environment for capital. By reducing the tax burden on large-scale investments, the government aims to strengthen the country’s industrial and technological base, attract multinational enterprises, and promote the creation of high-quality jobs. Moreover, the policy is intended to position the UK as a fiscally attractive and stable destination in the post-Brexit landscape, while supporting innovation and the modernization of strategic sectors such as infrastructure, green energy, and advanced technology.

Transfer Pricing Implications

The introduction of this tax incentive may have significant implications for transfer pricing, particularly for multinational enterprises operating in the UK. By encouraging large-scale capital investments, the measure is likely to increase the presence of tangible assets and key functions within the UK, potentially shifting the functional profile of certain entities within a multinational group. As a result, HMRC may expect a reassessment of profit allocation policies, especially concerning the use of local comparables, asset contribution analyses, and the justification of economic returns attributed to UK-based activities. Companies should carefully review their Local Files and Master Files documentation, taking into account the new fiscal benefits and their potential impact on the economic substance of their operations.