For me it worked when I changed the bundle id of Widget extension. It was a quick work around for me
Loki2988
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+1 to the same bug report
Found this issue when updated to iOS 17.5 and watchOS 10.5
Still using Xcode 15.2, as my Xcode 15.4 doesn't detect my Apple Watch. That is another issue.
But the file transfer from iPhone to Apple Watch works. However, there is notification that the file transfer is complete or not. This issue started to happen since the latest update watchOS 10.5