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GLOSSARY

Transfer pricing rules definition

Published by a LexisNexis Tax expert

What does Transfer pricing rules mean?

rules that require that transactions between connected parties are recognised for tax purposes by applying the amount of profit or loss that would have arisen if the same transaction had been carried out by unconnected parties. This is referred to as the 'arm's length principle'.

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Outsourcing and tax—checklist

Outsourcing and tax—checklist There are no specific laws, including tax laws, applicable to outsourcing arrangements and no technical legal meaning of the term. Consequently, each outsourcing arrangement will be specific to its own particular facts and will raise a different mix of tax issues. This Checklist sets out the headline tax issues that should be considered in relation to a contractual outsourcing. For the purposes of this Checklist, it is assumed that: • the contractual outsourcing arrangement is a direct supply of services from a third-party service provider to a customer • both the supplier and the customer are corporate entities, and • both the supplier and the customer are resident in the UK, other than in the final section on cross-border tax issues The Checklist is split into the following three sections: • setting up outsourcing arrangements • operating outsourcing arrangements, and • cross-border outsourcing arrangements This Checklist should be read in conjunction with the following Practice Notes: • Outsourcing—general tax issues, and • Outsourcing...

Key tax considerations for a UK corporate borrower—checklist

Key tax considerations for a UK corporate borrower—checklist This Checklist details the key direct and indirect tax issues that a corporate borrower within the charge to UK corporation tax (a UK corporate borrower) should consider both before entering into a loan and throughout the term of a loan. It is intended to be used as a Checklist for a tax adviser of a UK corporate borrower and includes a brief description of the relevant tax issues and provides space for the tax adviser to make notes. This Checklist assumes that: • the borrower is a company within the charge to UK corporation tax in respect of the loan, ie it is either a UK tax resident company or a non-UK tax resident company for which the loan is attributable to its UK permanent establishment (a UK PE) or attributable to the non-UK resident company's trade of dealing in or developing UK land, and • the borrower and the lender are unconnected parties acting at arm's length It applies both to...

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Distribution exemption—general anti-avoidance

Distribution exemption—general anti-avoidance There are eight anti-avoidance provisions which prevent the application of one or more of the exempt classes of distribution for distributions received by companies that are not small. For details of the exempt classes, see Practice Note: How are non-small companies taxed on distributions received? For information on what a small company is, see Practice Note: What is a small company for the purposes of the distribution exemption? The four anti-avoidance provisions explained in this Practice Note have general application, ie if a distribution falls foul of one of these provisions they cannot fall within any exempt class and will therefore automatically be taxable. These four general anti-avoidance provisions are: • schemes in which deductions are given for distributions • schemes involving payments for distributions • schemes involving payments not on arm's length terms, and • schemes involving diversion of trade income The other four anti-avoidance provisions are targeted at distributions that would, apart from such anti-avoidance provision, fall within one or more specific exempt...

CFC rules—entity level exemptions: low profits

CFC rules—entity level exemptions: low profits This Practice Note deals with the controlled foreign company (CFC) rules that apply for accounting periods of CFCs commencing on or after 1 January 2013. For information on the equivalent exemption under the rules that applied previously, see Practice Notes: Old CFC rules—exceptions from the CFC rules — Chargeable profits under £50,000 and relevant profits under £200,000. The differences between the old and new rules are explained in this Practice Note. Even if a company is a CFC for an accounting period, a CFC tax charge will only arise if: • the CFC has chargeable profits that pass through the gateway, and • none of the exemptions from the CFC rules apply For further detail about the calculation of the CFC tax charge, see Practice Note: CFC rules—apportionment and tax charge. There are two types of exemption: • entity level exemptions—these exclude the CFC from the CFC rules altogether for that accounting period. The relevant exemptions are:...

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Does the UK (or HMRC in practice) express a preference for a particular transfer pricing method for establishing an arm’s length price of interest, which is based on the location of the lender and the borrower?

Does the UK (or HMRC in practice) express a preference for a particular transfer pricing method for establishing an arm’s length price of interest, which is based on the location of the lender and the borrower? Transfer pricing rules in the UK and elsewhere require that transactions between connected parties are recognised for tax purposes by applying the amount of profit that would have arisen if the same transaction had been carried out by unconnected parties. This is referred to as the 'arm's length principle'. The arm's length principle is endorsed by the Organisation for Economic Co-operation and Development (OECD) and enshrined in the Associated Enterprises Article (Article 9) of the OECD Model Tax Convention. See also HMRC Guidance: INTM421010. Most countries (other than the US and some developing countries who take a different approach) enforce transfer pricing laws and guidelines based on the arm's length principle as defined in the OECD's Transfer Pricing Guidelines (the TP Guidelines). The UK transfer pricing legislation is set out in...

What are the benefits for a shareholder to a joint venture in financing the joint venture company using debt, such as loan note or loans, as opposed to solely equity?

What are the benefits for a shareholder to a joint venture in financing the joint venture company using debt, such as loan note or loans, as opposed to solely equity? There are two principal advantages in funding a joint venture company by way of debt rather than equity. However, these advantages need to be carefully evaluated in the light of tax issues. The first advantage is that loans may carry interest, either at fixed or variable rates. Interest may be paid by the joint venture company from any available funds (unlike dividends on shares, which may be paid only from net realised profits). Furthermore, interest payments will usually (subject to the precise circumstances) be deductible in calculating the joint venture company's taxable profits, whereas dividends would never be deductible expenses. However, this basic position may be affected if the joint venture company and one or more of its shareholders are connected (as defined). In certain circumstances, the deductibility of interest payments may be restricted or delayed....

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Tax weekly highlights—10 July 2025

This week's edition of Tax weekly highlights includes: (1) the announcement that Legislation Day will be on 21 July, (2) News Analysis of the Court of Appeal decision in Mudan concerning SDLT and the meaning of ‘suitable for use as a dwelling’, and (3) News Analysis of the Haworth case, another Court of Appeal decision, this time on the place of effective management test under the UK/Mauritius double tax treaty.

Share Incentives weekly highlights—1 May 2025

This week's edition of Share Incentives weekly highlights includes(1) HMRC’s new package of tax administration and simplification measures announced this week, (2) HMRC’s Employment Related Securities Bulletin 60, and (3) numerous investor revolts over executive pay, including Melrose Industries plc suffering a defeat in respect of its directors’ remuneration report, as the 2025 AGM season continues.

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