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HMRC internal manual

Business Income Manual

Stock: non-trading transactions in stock: transfer pricing and thin capitalisation

Where someone has transactions with a connected party, then transfer pricing and thin capitalisation rules may require tax to be calculated on the basis of what the ‘arms length’ provision would have been - if the actual provision confers a tax advantage in comparison with the ‘arm’s length’ result.

The rules apply to transactions between UK taxpayers, as well as cross border transactions. There is an exemption for most transactions by small and medium-sized enterprises (as assessed on a ‘group’ basis).

Details of the current transfer pricing rules are set out at INTM410000 onwards. Guidance on thin capitalisation is at INTM570000 onwards.