The following Corporation Tax guidance note by Tolley in association with Pricewaterhouse Coopers provides comprehensive and up to date tax information covering:
As explained in the HMRC approach to transfer pricing enquiries guidance note, taxpayers are required to make a transfer pricing adjustment in their UK tax return if an increase in taxable profits or reduction in allowable losses would arise from arm’s length pricing being applied to transactions with connected parties, when compared to the actual pricing that has been applied by the parties. Taxpayers are not permitted to make an adjustment which results in decreased taxable profits or greater allowable losses, unless they believe they are not being taxed in accordance with the terms of a UK double taxation agreement and seek action under the Mutual Agreement Procedures. See INTM153270.
If the adjustment to be made is between UK companies or individuals (a ‘UK-to-UK adjustment’) the 'disadvantaged person' involved in the transaction is able to calculate their tax by making a 'compensating adjustment' to their taxable profits or losses.
The following criteria must be met for such an adjustment to be made:
If a transfer pricing adjustment is necessary following the conclusion of an enquiry, but the disadvantaged person has already submitted a return for the relevant period, then the disadvantaged party will be able to amend their return to take account of the compensating adjustment.
Secondary adjustments such as deemed distributions or deemed capital contributions are not made
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