The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

• UK transfer pricing in practice
• Understanding the value chain of the business
• Review the transfer pricing policy
• Maintaining intercompany agreements
• Transfer pricing documentation
• Transfer pricing enquiries and advance pricing agreement

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The UK transfer pricing rules require an adjustment of profits where a transaction between connected parties is not undertaken at arm s length and has created a potential UK tax advantage Transfer pricing is a specialist area in tax and relies on an experience of similar businesses and activities The following therefore only outlines the transfer pricing process in practical terms to allow a non specialist to understand the methodology of a transfer pricing review TIOPA 2010 Part 4 The legislation defines an arm s length price as the price which might have been expected if the parties to the transaction had been independent persons dealing at arm s length based on OECD guidelines Application of an arm s length principle under the OECD guidelines is based on a comparison of transactions between associated parties in a multinational enterprise MNE with the transactions which would have taken place between independent parties under the same circumstances this is known as a comparability analysis In order to undertake a comparability analysis the business must review the commercial and financial relationships between associated parties to establish the contractual terms the functions performed by each party what assets are used and what risks are taken on the characteristics of property transferred or services provided the market in which the parties operate any business strategies pursued by the parties eg market penetration TIOPA 2010 s 164 This is known as a functional analysis In practice the steps of a transfer pricing review are outlined in the attached pdf Click here to view pdf These steps are summarised below with links to detailed commentary in Simon s Taxes Understanding the value chain of the business Individual businesses will have different aspects which make them unique and create value these value driver