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HMRC internal manual

International Manual

Description of double taxation agreements: Associated enterprises

This Article deals with transactions between an enterprise of one country and an enterprise of the other country where one enterprise participates directly or indirectly in the management, control or capital of the other, for example a parent/subsidiary relationship, or where both enterprises are managed or controlled by the same persons, for example two companies under common control.

If conditions are made or imposed between two associated enterprises which would not have been made between independent enterprises, the tax authorities of one country may, in calculating tax liabilities, re-write the accounts to show the arm’s length taxable profits arising in that country.

Other countries have provisions in their domestic law equivalent to TIOPA10/Part IV, which enables them to adjust the transfer price to an arm’s length price where there are transactions between resident and non-resident enterprises, one of which controls the other or where both are under common control.

If the foreign country makes an adjustment to the profits of its enterprise and the other enterprise is a United Kingdom one, then the same income will be taxed in the hands of different persons. Agreements provide for a measure of relief for this economic double taxation. Further information about this relief and guidance for the action to be taken will be found in INTM161320.