CIRD45038 - Intangible assets: related party rules: market value rule: interaction with transfer pricing – cross-border transfers

As explained in the section of the manual on international issues (see CIRD47060), the transfer pricing legislation (TIOPA10/PART4) applies to transactions within Part 8, as it does to other transactions of an income nature for the purposes of CT (see CIRD47060).

It is possible that, in the case of a transaction between related parties, the price to be placed on the transaction for corporation tax purposes could be different under the transfer pricing rules (determining the arm’s length consideration) from that under the market value rule in Part 8 (described in CIRD45030).

There have been two significant Finance Act amendments that determine how the transfer pricing rules interact with the basic market value rule.

  • For periods 8 July 2015 to 31 December 2025, CTA09/S846(1B) was introduced by F(2)A15/S42 with effect from 8 July 20125. Broadly speaking CTA09/S846(1B) required that the market value rule be considered alongside transfer pricing. These rules are covered at CIRD48330. From 1 January 2026 CTA09/S846(1B) no longer applies.
  • From 1 January 2026, FA26/S47 amended CTA09/S845, restoring priority to transfer pricing in relation to transfers of intangible fixed asset where there is a cross-border transfer. The current rules are outlined below.


Background

Prior to 8 July 2015 Part 8 provided that the transfer pricing rules in TIOPA10/PART4 took precedence over the market value rule. That was the case where:

  • the price of a transaction actually needs to be adjusted under TIOPA10/PART4, or
  • no adjustment is required under TIOPA10/PART4 because the consideration actually given was an arm’s length amount but, had the transaction not been on arm’s length terms, a transfer pricing adjustment would have been possible.


Those rules were amended by F(2)A15 to counter tax avoidance and but have been further amended by FA26/S47 as part of the transfer pricing reform (see INTM414000). Broadly speaking, the new rules restore priority to transfer pricing where there is a cross-border transaction. Cross-border transactions are now subject to a single valuation standard, the arm’s length valuation standard. There is therefore no need to consider market value.

Circumstances when the general rule in CTA09/S845 is disapplied (CTA09/S845 (4ZA) and (4ZB))

FA26/S47 amended CT09/S845 with effect from 1 January 2026, restoring priority to transfer pricing (TIOPA10/PART4) where there is either a:

  • cross-border transfer, and the transfer is subject to transfer pricing (CTA09/S845(4ZA)), or
  • cross-border transfer which would have been subject to transfer pricing, but no transfer pricing adjustment is required (see CIRD45040).

Broadly speaking the intention is to apply the arm’s length valuation standard to cross-border transactions rather than market value. This is achieved by either disapplying the basic rule and allowing TIOPA10/PART4 to operate (CTA09/S845(4ZA)), or by applying the new rules in CTSA09/S846 (CTA09/S845(4ZB)) (see CIRD45040).

FA26/S47 inserted subsection (3) to TIOPA10/S151 to ensure the cash equivalent is brought into account for the purpose of CTA09/PART8.


CTA09/S845(4ZC)

Where there is an adjustment under CTA09/S846, CTA09/S845 (4ZC) applies the arm’s-length valuation rule ‘for all purposes of the Taxes Acts’.


What is a cross-border transfer (CTA09/S845(4ZD) – (4ZG))

CTA09/S845(4ZD) defines cross-border transfer by reference to two broad situations, those situations are where the related party is either

  • a UK resident company with a qualifying permanent establishment outside the UK (CTA09/S845(4ZD)(a)), or
  • a non-UK resident company, individual or firm, except where the non-UK resident company, individual or firm has a permanent establishment in the UK with a relevant connection to the transferred asset (CTA09/S845(4ZD)(b) – (c)).


CTA09/S845(4ZE) defines ‘qualifying’ in relation to a related party’s permanent establishment outside the United Kingdom. Broadly ‘qualifying’ means

  • an election under CTA09/S18A(1) (exemption for profits or losses of foreign permanent establishments) has been made requiring adjustment to be made to the taxable profits, and
  • those adjustments include adjustments in respect of the transferred asset.

The exceptions in CTA09/S845(4ZD)(a)–(d) ensure that domestic transactions involving a related party with a permanent establishment, which has an intangible fixed asset within the scope of UK tax, is not treated as a cross-border transaction. This allows the basic market value rule to operate where the related party’s intangible fixed asset is within the scope of UK tax for both parties. For example a transfer between a UK resident company and a non-UK resident company with a permanent establishment in the UK is not a cross-border transfer because the intangible fixed asset is within the scope of UK taxation for both parties (see also the relevant connection test below). This means the transferred asset is attributed to the UK permanent establishment because of its relevant connection to that asset.

CTA09/S845(4ZF) defines relevant connection in relation to a permanent establishment by reference to Chapter 4 of Part 2 as one that can be attributable to that permanent establishment.

CTA09/S845(4ZG) defines relevant connection in relation to a branch or agency.


CTA09/S845 (6) & (7)

CTA09/S845(6) defines “branch or agency”.

CTA09/S845(7) defines “provision”, “arm’s -length provisions”, and “subject to transfer pricing”.