UK transfer pricing rules

By Tolley in association with Robert Langston of Saffery Champness
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The following Corporation Tax guidance note by Tolley in association with Robert Langston of Saffery Champness provides comprehensive and up to date tax information covering:

  • UK transfer pricing rules
  • Transactions affected by the legislation
  • Transfer pricing adjustments
  • Compensating adjustments
  • Exemptions for small and medium sized companies
  • Dormant companies
  • Controlled Foreign Companies
  • Penalties for non-compliance
  • Enquiries
  • Other anti-avoidance rules – transfers of profits
  • Other anti-avoidance rules – diverted profits tax

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.

TIOPA 2010, Part 4

Parties are treated as connected where they are under common control. Control is defined in CTA 2010, s 1124 and includes majority voting rights and majority rights to distributions. Rights which may be acquired at a later date and rights of connected persons must also be taken into account.

TIOPA 2010, s 158

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 principles.

TIOPA 2010, s 164

For a flowchart outlining whether an entity falls within the UK's transfer pricing rules, see the Flowchart – UK transfer pricing rules.

Transactions affected by the legislation

The legislation refers to a 'provision' made between connected persons by means of a transaction or series of transactions. This can include situations in which no charge has been made and where transactions are unrecorded in the accounts or not recognised by the company, for instance:

  • use of brand names by other group companies
  • management services provided by a parent company
Transfer pricing adjustments

A transfer pricing adjustment is only made for tax calculation purposes. Companies can charge what they wish in their accounts (subject to local accounting practices). However, where a compensating adjustment is not available, companies may wish to make actual charges which are reflected in their accounts.

A tax adjustment will only be made where there is a UK tax advantage conferred as a result of a

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