In July 2025, HM Revenue & Customs (HMRC) published a significant update to its International Manual (sections INTM422160 and INTM422170), incorporating guidelines for the use of Unilateral Advance Pricing Agreements (Unilateral APA) applicable to UK entities participating in Cost Contribution Arrangements (CCA).
This development is part of the government’s Corporate Tax Roadmap strategy, a roadmap drawn up by the British government to ensure transparency, efficiency, and competitiveness in its corporate tax system by promoting voluntary compliance by domestic and multinational companies.
Corporate Tax Roadmap and the role of HMRC
The Corporate Tax Roadmap, initially launched in 2010 and updated in 2021 and 2025, sets out guiding principles for UK corporate tax policy. Its key objectives include:
- Ensuring the stability and predictability of the tax system.
- Adapt UK tax legislation to international standards, in particular those of the OECD.
- Promote the UK as a competitive jurisdiction for investment and innovation.
Within this framework, HMRC has sought to strengthen preventive tools such as Advance Pricing Agreements (APAs), which allow taxpayers and tax authorities to agree in advance on a transfer pricing method applicable to certain transactions, thereby reducing the risk of unilateral adjustments, costly audits, or protracted disputes.
Participation in a CCA: commercial substance and risk control
A CCA is an instrument that allows several entities within the same group to share the costs of developing or exploiting assets—such as patents, software, or joint research—in proportion to the estimated economic benefit to each taxpayer.
The guidance published by HMRC emphasizes that to validate an APA related to a CCA, the UK entity must demonstrate that it plays an effective role in controlling the risks associated with the arrangement and that its economic and operational contribution is not merely symbolic. The degree of control over the relevant decisions of the CCA is assessed, as well as whether those decisions reflect a functional structure consistent with the standards of Chapter VIII of the OECD Model.
In this scenario, it is not enough to meet formal requirements; evidence of genuine economic intent, clear contracts, detailed technical records, and rigorous financial analysis supporting the price agreed between the related firms is required.
What is a unilateral APA and how is it requested?
A unilateral APA is an agreement between a company and a single tax administration (in this case, HMRC), in which the tax treatment of certain transactions is agreed in advance. Unlike a bilateral APA (which involves two jurisdictions), a unilateral APA does not ensure that the other administration will accept the same treatment, but it is still useful for providing certainty in the United Kingdom.
To apply for this unilateral APA, the taxpayer must:
- Submit a formal expression of interest to HMRC’s Transfer Pricing office.
- Include a detailed description of the CCA, signed legal agreements, and functional analysis of the parties.
- Demonstrate that risk control exists on the part of the UK participant, in accordance with Chapter VIII of the OECD Guidelines.
- Provide financial documentation, economic analysis, and evidence that the proposed methods comply with the arm’s length principle.
HMRC will assess the application based on economic rationality, compliance with international standards, and consistency with other group agreements.
Effects of the APA and benefits for multinational groups
The guidance allows APAs to apply throughout the term of the APA and, exceptionally, also with retroactive effect for years already audited or in dispute, giving companies the opportunity to correct or consolidate their tax position on an advance and documented basis. At the end of the process, HMRC:
- Accepts the CCA methodology, provided that the economic and functional attributes remain constant during the agreed period.
- Allows existing disputes to be resolved by offering a technical solution before resorting to arbitration or litigation.
- Contributes to reducing tax risks, especially in cross-border transactions or joint research projects.
This formalized APA framework strengthens the ability of multinational groups to plan their intellectual property operations, make informed decisions about their international structure, and avoid tax surprises from subsequent adjustments that lead to jurisdictional disputes or unnecessary litigation.
Conclusion
The publication of this guide by HMRC marks a step towards more rational, collaborative taxation that is better adapted to the current challenges of transfer pricing and joint development of intangibles. The unilateral APA for CCAs not only strengthens legal certainty for UK companies, but also aligns its regulations with OECD best practices without imposing disproportionate burdens.
In an international environment where scrutiny of intellectual property and risks assumed is intensifying, having a clear, accessible, and technically robust framework is a competitive advantage for multinationals operating from the UK or with a stake in global innovation projects.
Source: Skadden