Executive summary

As of 19 June 2025, His Majesty's Revenue & Customs (HMRC) in the United Kingdom (UK) formally endorsed the use of unilateral Advance Pricing Agreements (APAs) covering Cost Contribution Agreements (CCAs) by issuing detailed guidance and a sample draft agreement. These APAs provide the possibility for taxpayers to obtain certainty on the validity of a UK entity's participation in CCAs.

Background

On 26 March 2025, the UK Government (through HMRC) issued a formal consultation on developing a new process to give major investment projects increased tax certainty in advance with the launch of a process for advanced agreements on the tax treatment of CCAs through unilateral APAs under the existing legislation on APAs. (For background, see EY Global Tax Alert, UK HMRC allows for unilateral APAs to provide certainty on cost contribution arrangements, dated 4 April 2025.)

In this context, HMRC has now updated its guidance to set out how HMRC operates the CCA APA program. The sample draft agreement released with the guidance should help UK taxpayers understand the typical types of clauses that might be found or be suitable for such CCA APAs.

HMRC noted that although the guidance and sample agreement are now published, it remains open to feedback and may provide further updates.

Purpose

The guidance outlines how HMRC will operate the CCA APA program, offering certainty on the validity of a UK entity's participation in a commercially viable CCA, as defined at paragraph 8.3 of Chapter VIII of the Organisation for Economic Co-operation and Development's Transfer Pricing Guidelines.

Key clarifications and updates

Scope

The APAs will be restricted to commercially viable CCAs and will provide certainty that HMRC will not challenge or recharacterize the UK entity's participation in the CCA under the UK's Transfer Pricing legislation, as long as the UK entity remains a valid participant. The sample agreement specifies that a CCA APA typically covers "transactions that give effect to entry, withdrawal, termination or variation of participation in the CCA." It also affirms that the APA is legally binding on HMRC, which will apply Part 4 TIOPA 2010 throughout the term of the APA provided the contractual terms of the CCA are respected. (TIOPA refers to the Taxation (International and Other Provisions) Act; Part 4 of TIOPA addresses transfer pricing.)

Exclusion

The guidance clarifies that the APA will not price or agree to contribution or valuation matters, although separate bilateral or multilateral APAs between the UK and counterparty states could be sought to cover these.

Rollback provisions

HMRC is open to applying CCA APAs to past periods, including those under enquiry. This represents a significant departure from the usual approach in the UK, where HMRC would expect an enquiry to be completed before agreeing an APA.

Longer APA terms

To align the APA with the envisaged CCA term, terms longer than the five-year maximum seen in bilateral APAs may be sought in cases involving intellectual property (IP) development.

Expression of Interest (EOI)

Requests for an EOI can already be made by emailing the HMRC. EOI requests should include a summary of the CCA, legal agreements, a commercial viability narrative and the proposed APA term.

Bilateral APAs

Requests for bilateral APAs with respect to participation and/or pricing of a CCA will remain subject to the general APA Statement of Practice, rather than the guidance specific to unilateral APAs covering a UK entity's participation in a CCA.

Early termination

If a UK taxpayer exits a CCA during the APA term, the guidance clarifies that HMRC will apply the UK Transfer Pricing rules to any payments or receipts relating to the exit on the basis that the UK entity was a valid participant in the CCA while it was a contractual member.

Agreement structure

The sample agreement outlines the scope of coverage (i.e., entry, exit, variation of CCA participation), confirms its binding nature under section 218 Taxation (IOPA 2010), and clarifies that HMRC will apply transfer pricing rules on the basis that the UK entity is a valid participant in the CCA.

What does this mean for businesses?

HMRC is already accepting EOI requests. Businesses that are currently engaged in or considering CCAs should consider applying for a unilateral APA to gain certainty on the tax treatment of their CCAs for prior years, the full term of their CCA and even to gain certainty on the treatment by HMRC in the event of a premature exit.

Businesses that have CCAs and are currently under enquiry may also consider applying for unilateral APAs to accelerate resolution on enquiries and gain certainty on the taxation of the CCA for future and prior periods.

Affected taxpayers should consult with an appropriate tax advisor for help navigating this new process in an area that has historically faced significant challenge.

Next steps

HMRC has requested written comments on the guidance and sample agreement by 1 July 2025. Businesses with UK entities currently participating in or considering CCAs should review the updated guidance and assess its implications. EY is currently drafting comments to submit to HMRC.