Corporation Tax

Transfer pricing rules ― overview

Produced by Tolley
  • 23 Mar 2022 10:37

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

  • Transfer pricing rules ― overview
  • What is transfer pricing?
  • Who do the transfer pricing rules apply to?
  • Exemption from transfer pricing for SMEs
  • Exemption from transfer pricing for dormant companies
  • Transfer pricing: capital allowances and capital gains
  • Articles relating to transfer pricing

Transfer pricing rules ― overview

What is transfer pricing?

Transfer pricing is the price at which an enterprise transfers either physical goods, intangible property or services, including financing arrangements, to associated enterprises. Generally, enterprises are associated if there is direct or indirect control by one of the enterprises of the other, or they are under common control. For these purposes, direct control means the ability to determine how the affairs of the company are conducted by virtue of the shareholding, voting rights or any powers within the articles of association or other document regulating the company or any other company. Determining whether indirect control exists depends on including rights and powers which are available in the future or which are held by other persons.

Transfer prices are important because, in large part, they determine the taxable profits of associated enterprises in different tax jurisdictions. Different tax authorities seek to ensure that the amount of taxable profit of an enterprise in their jurisdiction represents the appropriate amount of profit and that multinational enterprises do not transfer profits to low tax territories to minimise their tax liability. Most tax authorities therefore require transfer prices between associated enterprises to be agreed on an arm’s length basis, that is equivalent to the price that would have been charged and terms agreed between independent parties in the same circumstances.

Transfer pricing risks mainly arise in cross-border transactions; however, UK transfer pricing legislation also applies to transactions where both associated parties are within the UK, given the risk

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