Executive summary

On 26 March 2025, the United Kingdom (UK) government (through His Majesty's Treasury) issued a formal consultation on developing a new process to give major investment projects increased tax certainty in advance. That consultation will run for 12 weeks and close on 17 June 2025.

Within that consultation, Chapter 5 announced the launch of a process for advanced agreements on the tax treatment of CCAs to be offered through APAs using existing legislation. Full details of the process and conditions associated with such an APA will be finalized through a Statement of Practice, which HMRC hopes will be published by late Spring 2025. However, in discussions with stakeholders, HMRC has given some indications as to its thinking and will look to engage on the Statement of Practice before it is finalized.

In recent years, the tax treatment of some cost contribution arrangements (CCAs) for the shared development of intangible assets has given rise to disputes between HMRC and taxpayers. Specifically, in some cases, HMRC has argued that UK CCA participants do not meet the technical criteria to be treated as participants and, as a consequence, CCA payments made by those participants should not be treated as deductible, nor should the UK participant be treated as owning rights to the relevant assets. This has created uncertainty in the tax and accounting treatment of these arrangements.

In response to this, and in light of the UK Government's commitment to review the transfer pricing treatment of CCAs to provide greater certainty for taxpayers as announced in the Autum Budget 2024, HMRC has announced the process for advanced agreements on the tax treatment of CCAs through unilateral APAs. Importantly, HMRC is currently open to considering CCAs for the APA program to apply for future and retrospective periods even if periods are under enquiry.

What are CCAs?

CCAs are contractual agreements between group companies that facilitate the sharing of costs and benefits associated with the development of shared assets, such as intellectual property.

Guidance surrounding the treatment of CCAs is set out in Chapter 8 of the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. There may also be specific rules regarding CCAs in national tax legislation, most notably in the United States (US) Treasury Regulations under 26 CFR section 1.482-7.

In recent years, some CCAs have given rise to disputes between HMRC and taxpayers, in cases where HMRC has taken the view that the conditions described in Chapter 8 of the OECD Guidelines for a UK company to be treated as a valid CCA participant have not been met. In these cases, HMRC's view has been that, for tax purposes, the UK entity should not be recognized as a CCA participant and should be treated as having neither shared the costs of developing the assets nor the right to benefit from them. This creates a risk of double taxation as tax authorities in counterparty jurisdictions may not take the same view as HMRC.

Recognizing the complexities and varying interpretations of the OECD Guidelines surrounding CCAs, the UK Government has sought an approach that aims to protect inward investment, provide increased tax certainty, and address an area of technical difficulty that it recognizes can lead to unresolved double taxation.

Advance Pricing Agreements

To provide greater certainty regarding the treatment of CCAs, HMRC intends to offer advance agreements through unilateral APAs. These agreements will ensure a common framework for discussion between HMRC and the taxpayer on the treatment and recognition of CCA arrangements with the aim of reducing the potential for instances of double taxation in the event of any transfer pricing adjustment. The expectation is that, due to the nature of the issue covered by this type of unilateral APA (recognition of the CCA, and not the pricing of transactions), the process will be substantially faster than a typical APA negotiation.

HMRC is expected to publish an updated Statement of Practice, detailing the necessary conditions for entering into unilateral APAs related to CCAs in Spring 2025. Key considerations for granting these clearances will include the commercial viability of the CCA and the expected profitability of the UK participant over the term of the arrangement.

The UK Government recognizes the importance of providing clarity on the treatment of CCAs, even for periods in which tax returns have already been filed. As such, APAs over CCAs may also be agreed to apply retrospectively, allowing businesses to address existing potential uncertainties surrounding their tax obligations for existing arrangements. This is even the case for CCA arrangements that are currently under enquiry by HMRC.

What does this mean for businesses?

The potential for certainty on HMRC's treatment of CCAs may encourage businesses to consider entering into cost-shared intangible development in the UK. Businesses engaged in or considering CCAs should consider applying for a unilateral APA to gain certainty on the tax treatment of their CCAs. Businesses that have CCAs that are currently under enquiry may consider applying for unilateral APAs to accelerate resolution on enquiries and gain certainty on the taxation of the CCA for future and prior periods.

Taxpayers should also monitor any forthcoming changes to the Statement of Practice on APAs, which may clarify the tax treatment that can be expected for CCAs under an APA.

Although the APA process for CCAs is not specifically part of the consultation process there is still the opportunity to provide feedback on how the proposed measures can be tailored to increase tax certainty. Businesses considering investing in the UK through CCAs may wish to consider providing their own views to HMRC on HMRC's approach to providing greater certainty to UK taxpayers on the taxation of CCAs.