Spring Statement: Improving tax certainty for business

These proposals are welcome news for corporate taxpayers, and it is hoped they will allow businesses to gain upfront certainty over their tax affairs and help to incentivise UK investment.

It is proposed that the clearance service will predominantly relate to corporation tax matters, although the Government is seeking views on what other tax areas could be covered. The Government is considering charging a fee to use the service to support timely delivery and is seeking views on this.

It is envisaged that advance certainty clearance applications will be required to be made in writing in advance of investment in a major project in cases where board approval has either been given, or the tax clearance is the deciding factor in going ahead with the investment. Prior to making an application, it is proposed that businesses can request an optional early engagement meeting with HMRC to discuss the process.

Once a written application has been made, it is proposed that a scoping meeting with HMRC for valid applications be held within 30 days to agree areas of priority focus, timelines and discuss any additional information required. Clearances would then be issued in writing stating whether HMRC agree 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. Views are sought on whether, and to what extent, the clearance opinion should be mutually binding.

Clearances are expected to be given for a maximum period of five years, and it is therefore envisaged that for projects with a longer duration there will be a renewal process.

While this new service will be quite limited in scope (likely with a financial threshold for the level of investment and/or additional criteria), it will potentially benefit corporate taxpayers more broadly as the Government is proposing to make decisions under the new service publicly available in an anonymised form. Although other taxpayers may not rely on the clearances, this information may help to clarify HMRC’s position, particularly on matters of legal interpretation uncertainty. Existing clearance processes, support from the Inward Investment Service and dedicated HMRC Customer Compliance Managers for the largest businesses will also continue to be available for those taxpayers who do not meet the criteria to use this new service.

CCAs (also known as cost sharing arrangements) are commonly used to support major investments in new technologies where multiple participants within a group are contributing expertise and resources, for example to support integration following a business combination. Their treatment for transfer pricing purposes can be complex, resulting in significant uncertainty over the deductibility of development costs and funding costs of the UK participant.

Changes in US economic policy, including anticipated increases in the Base Erosion and Anti-Abuse Tax (BEAT), mean CCAs are likely to remain very relevant, for example when US multinationals acquire non-US targets or vice versa.

The Government has now confirmed that HMRC will look to provide certainty on the transfer pricing treatment of CCAs (specifically that a UK company’s participation in a CCA will be respected for transfer pricing purposes). This will involve a unilateral Advance Pricing Agreement (APA) process that can be agreed and implemented on a significantly shorter timescale than a typical APA because it is only intended to provide certainty on the delineation or characterisation of the CCA. Valuations of contributions made (often referred to as buy-in payments) and the anticipated benefits of the participants would not be covered by the new unilateral APA process. However, HMRC have indicated their willingness to explore an expanded scope with individual taxpayers, including the potential to move onto a bilateral APA.

There are a number of long running HMRC enquiries involving CCAs, so it is a welcome development that HMRC are looking to provide increased tax certainty in this area and protect inward investment. HMRC have confirmed that it will be possible for these new unilateral APAs to be ‘rolled back’ to earlier periods, including periods where the transfer pricing treatment of the CCA is under enquiry. HMRC have also indicated that they expect that it will be necessary to agree APAs covering CCAs for periods of longer than five years, and that in most cases it would be beneficial for the APAs to last for the duration of the term of the CCA.

This change will be supported by a new Statement of Practice (SOP) which will provide further details on what should be included in an expression of interest for an APA, the circumstances where an APA will be provided, and critical assumptions that HMRC would expect such an APA to include. One of the key areas of focus for HMRC will be on whether there are reliable forecasts available which demonstrate that the UK participant is expected to generate a profit from the CCA activity over the life of the agreement.

HMRC are aiming to finalise this SOP by the end of spring 2025, but have indicated that they are also open to receiving APA applications before the SOP is published.

HMRC’s previously published guidance on the control of risk framework remains applicable, but the unilateral APA provides a mechanism for HMRC to provide certainty on the validity of a CCA in cases where it can be demonstrated to HMRC that the CCA is commercially viable, such that CCA term UK tax liabilities are expected to be greater if CCA participation is respected.

The consultation remains open until 17 June 2025 and we would encourage businesses that make significant capital investments to respond. If you would like to discuss either this or other clearance routes further, please speak to the authors or your usual KPMG in the UK contacts.

For further information please contact:

• Phil Roper
• Roisin Porter