Transfer pricing planning

By Tolley in association with Robert Langston of Saffery Champness

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:

  • Transfer pricing planning
  • Business restructuring
  • Payments on behalf of subsidiaries
  • Joint ventures
  • Share options
  • Interaction with customs duty, VAT and expatriate tax issues

Business restructuring

Transfer pricing planning often involves restructuring existing intercompany relationships, so that functions, assets and risks are transferred to low tax countries. This involves characterising companies in high tax countries as low risk, and those in low tax countries as high risk. Greater profits are then recognised in the low tax jurisdiction.

Following the final OECD BEPS report on Actions 8, 9 and 10  published in October 2015, the management of intangible assets and risks must also be considered under an appropriate transfer pricing policy. The legal ownership of the intangible alone does not mean that an entity should be entitled to profits. This would need to be taken into account when undertaking business restructuring.

See the Characterisation of entities and Effective tax rate planning guidance notes.

Transferring tangible assets may crystallise capital gains in the company which previously held these functions, assets and risks. This gain may be realised in respect of identifiable assets such as customer lists, or less identifiable assets such as goodwill.

Since 2010 , business restructuring has been dealt with in the OECD Transfer Pricing Guidelines.

As the UK transfer pricing rules are required to follow the OECD Transfer Pricing Guidelines, these principles should also be followed for UK tax purposes. Other jurisdictions (such as the US and Germany) have specific rules dealing with business restructuring.

The Guidelines set out a number of points which will support business restructuring. They set out that business restructuring can be effective, even if undertaken for tax reasons. They also set out that transactions should be recognised following the restructuring as if they had been in place from outset.

However, the Guidelines also outline ways in which business restructuring will not be effective for tax purposes, for instance:

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