When I first qualified into tax, UK-UK transfer pricing was not a thing. A UK company could lend money to a fellow UK group company without being required to impute interest on the loan. A UK parent could guarantee the loan of its UK subsidiary without needing to worry about whether it needed to impute a guarantee fee.
That all changed on 1 April 2004, when section 30 of the Finance Act 2004 extended the scope of the UK's transfer pricing rules to include transactions between two related UK companies (the so-extended rules can now be found in Part 4 of the Taxation (International and Other Provisions) Act 2010). That change brought with it an increased administrative burden for UK groups without any material increase in tax take.
Where a company suffers a positive transfer price inclusion on a UK-UK transaction, the counterparty can generally claim an equivalent deduction (a "corresponding adjustment") leaving the group flat in the UK. So, if the lender on an intra-UK group loan is deemed to receive interest, the borrower can make a claim to be deemed to have paid that interest.
The UK's Office of Tax Simplification (or OTS) - an independent adviser to the UK government on tax simplification - has just published an evaluation and stock take of its work on corporation tax, personal service companies and the self-employed.
The OTS calls out transfer pricing on a UK-UK transactions, encouraging the government to consider that:
"there can be a disproportionate burden in making and reporting small adjustments for UK-UK transfer pricing adjustments, and in relation to penalties that can arise even where any adjustments needed are self-cancelling"
Of course, the backdrop to the 2004 extension of the transfer pricing rules was the threat of EU challenge and the increasing number of group litigation orders calling into question the compatibility of various aspects of the UK tax code with fundamental EU freedoms. Perhaps a modest benefit from the UK leaving the EU could be the opportunity to roll that extension back...