Commentary

B4.121 Transfer pricing—the basic rule, meaning of provision and affected persons

Business tax
Business tax | Commentary

B4.121 Transfer pricing—the basic rule, meaning of provision and affected persons

Business tax | Commentary

B4.121 Transfer pricing—the basic rule, meaning of provision and affected persons

The statutory provisions governing the current transfer pricing regime are contained within TIOPA 2010, ss 146–217 (Part 4). They are designed to bring about the result that would have occurred had arm's length pricing been employed, by increasing the taxable profit of one of the parties to the transaction and providing for the other party to claim a compensating adjustment to its profit if it is a UK taxpayer (B4.126). For HMRC guidance on transfer pricing, see INTM410000 onwards.

Transfer pricing legislation: the basic rule

The basic transfer pricing rule requires, in essence, the adjustment of profits or losses in a tax return where1:

  1.  

    •     a provision (see below) exists between two or more affected persons (see below), by means of a transaction or series of transactions (B4.122), which does not follow the arm's length standard, and

  2.  

    •     that provision creates a potential UK tax advantage (B4.123) for one or both of those persons

The basic transfer pricing rule only applies if the participation condition is met which means that at the time of the making or imposition of the actual provision2:

  1.  

    •     one of the affected persons was directly or indirectly involved in the management, control or capital of the other, or

  2.  

    •     the same person was directly or indirectly involved in the management, control or capital of each of the affected persons

Where the actual provision is a financing

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