Policy paper

Compensating adjustments

This Tax Information and Impact Note removes the ability of individuals to claim compensating adjustments where the counterparty to the transaction is a company.

Document

Compensating adjustments

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Details

Transfer pricing legislation concerns the prices charged in transactions between connected parties. Where the actual price differs from the price that would have occurred had that connection not existed, the legislation replaces the actual price with the ‘arm’s length price’.

Within the UK, if rules adjust prices to increase one side’s profit, a claim can be made to reflect the same price for the other side. This adjustment is known as a compensating adjustment. The measure will remove the ability of individuals to claim compensating adjustments where the counterparty to the transaction is a company.

Published 30 October 2013