HMRC clarifies approach to transfer pricing ranges – and why the median now matters

In November 2025, HMRC updated its International Manual (INTM485120), setting out a more structured approach to how case teams and taxpayers should apply ranges in transfer pricing analyses. The update clarifies HMRC’s expectations on the selection of comparables, the use of statistical tools such as the interquartile range (IQR), and the appropriate point within that range when a taxpayer’s results fall outside it.

 

A more structured approach to ranges

HMRC reiterates that the objective of any transfer pricing review is to determine the most reliable arm’s length outcome based on available evidence. Where a benchmarking analysis produces a range of results, taxpayers are expected to:

1. Assess the reliability of comparables – Critically review each comparable and remove those with material defects.
2. Apply statistical tools carefully – Use tools like the interquartile range only where sufficient data and residual comparability defects remain.
3. Determine the adjustment point – If the tested party’s results sit outside the arm’s length range, select the most reliable point within the range for adjustment.

 

Median as the default adjustment point

The key change is HMRC’s explicit preference for the median as the default adjustment point where results lie outside the arm’s length range. This position, which HMRC believes aligns with OECD Transfer Pricing Guidelines (paragraphs 3.57 and 3.62), reflects HMRC’s view that comparability defects are common and that the median “maximises the likelihood that the adjusted price falls within the true arm’s length range.”

In practice, this means taxpayers can expect HMRC to “meet in the middle” when settling transfer pricing enquiries, especially where double taxation relief is likely to be pursued under the Mutual Agreement Procedure (MAP).

Importantly, HMRC also reaffirms that no adjustment is required when the taxpayer’s results fall within a reliable IQR. The emphasis, therefore, is on ensuring that the range itself is built from robust, defensible comparables.

 

Why this matters for multinationals

HMRC’s clarification doesn’t create new law but sets clearer expectations for compliance and audit conduct. In particular:

• Audit outcomes are likely to centre around the median – Taxpayers whose results fall outside the range should be prepared for HMRC to propose the median unless strong evidence supports another point. This raises the bar on technical justifications for lower-quartile or bespoke points.
• Documentation quality is decisive – HMRC prioritises “quality before statistics.” Thin or noisy comparable sets will be challenged, and statistical trimming will not fix weak selections.
• MAP defensibility drives UK positions – HMRC is increasingly seeking positions it can defend internationally, reinforcing the move toward consistency and predictability in MAP and APA negotiations.

 

Who is most exposed?

Routine distributors, contract manufacturers, and service providers that rely on broad transactional net margin method benchmarks are likely to feel the greatest impact of HMRC’s updated approach. These profiles often involve large, mixed-quality comparable sets, making them more vulnerable to challenges around reliability and range construction.

Inbound and outbound groups with thin operating margins or volatile year-on-year performance also face heightened exposure. Even small shifts in profitability can push results outside the arm’s length range, increasing the likelihood of adjustments and the need for stronger technical justification.

Sectors characterised by rapid change, such as technology, life sciences, consumer products, and logistics, may encounter similar pressure. In these industries, business models evolve quickly and comparability gaps are common, making it harder to find robust benchmarks and easier for HMRC to question the reliability of the underlying analysis.

For example, assume an IQR of 5-15%, with a median of 10%, and policy set at cost plus 5%. Year 1, filed at 5%, Year 2 filed at 4%. If you do not proactively adjust Year 2's reward up to at least 5%, in an audit HMRC may seek to adjust Year 2 to the median of 10%, significantly higher than the policy. Note that this presumes HMRC agrees with the comparables set to begin with.

 

What to do now? Practical next steps

• Conduct a reliability audit of your current benchmarking set, and identify weak comparables and document inclusion/exclusion criteria.
• Review your transfer pricing documentation to ensure each comparable ties back to your functional analysis and any residual defects are clearly explained.
• Define your target position. If outside the IQR, prepare a strong technical justification for any point other than the median.
• Implement in-year monitoring to track margins against the range and allow timely year-end adjustments.
• Align MAP and APA strategies with HMRC’s updated approach.
• Refresh governance frameworks and sign-off processes to reflect the median default.

 

How DLA Piper can help

• Comparable set reliability audits –  We assess your existing benchmarking studies against HMRC’s new criteria and prepare an audit-ready memo explaining the methodology in HMRC’s own language. Mass produced / generic comparable sets that have not been critically assessed will be at risk.
• Median vs. alternative point defence –  We build robust technical and evidential arguments where facts justify a non-median adjustment.
• Operational TP controls – We design monitoring systems to anticipate range breaches and support timely year-end adjustments.
• Controversy and MAP/APA strategy – Our team helps position and defend UK outcomes in alignment with HMRC’s new settlement framework.
• Documentation upgrades – We refine local and master file narratives to reflect HMRC’s revised expectations.
• Governance and stakeholder alignment – We brief boards, audit committees and CFOs on the practical impact of the median default and establish clear decision rights for TP adjustments.

 

The bottom line

HMRC’s updated guidance signals a clear move toward more standardised, evidence-driven outcomes. For taxpayers, this reinforces the importance of robust benchmarking, strong narratives, and defensible documentation when determining the appropriate point within the arm’s length range. As with all HMRC manuals, the guidance expresses the department’s view rather than establishing new law, and taxpayers may take a different position where supported by legislation, OECD principles, and the factual record.

Please get in touch with us if you would like to discuss the implications for your transfer pricing approach.