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HMRC internal manual

International Manual

HM Revenue & Customs
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Transfer pricing: legislation: rules: introduction

An introduction to the UK’s transfer pricing legislation

The purpose of the legislation is to counter potential tax loss generated by non arm’s length pricing (see INTM412050) of a business provision (INTM412080) between persons that are not independent (INTM412100). More detail on this basic principle is at INTM412040.

The legislation is not conditional on whether the setting of the actual transfer price was tax driven. It operates by comparing the taxable profit or loss arising from the actual provision with the taxable profit or loss from the arm’s length provision, and replacing the actual provision with the arm’s length provision if it produces a greater taxable profit or lower tax loss. It only acts to reduce a profit or increase a loss through a compensating adjustment; see INTM412130.

There are exemptions from transfer pricing for some companies in some situations. Details can be found at INTM412070.

Self Assessment returns are required to reflect any adjustments to taxable profits or losses that arise from the application of the arm’s length principle, subject to the provisos above.

Legislation for accounting periods ending on or after 1 April 2010 (and income tax years 2010/11 onwards) is at Part 4 Taxation (International and Other Provisions) Act 2010 (‘TIOPA10’).

ICTA88/SCH28AA is the legislative basis for transfer pricing for earlier accounting periods ending on or after 1 July 1999 (and income tax years of assessment 1999/2000 onwards). This guidance refers to TIOPA10 throughout (with some reminders of the earlier legislation).

TIOPA10/S164 provides that the legislation is to be construed in a manner that best secures consistency with:

  • the expression of the arm’s length principle in Article 9 of the OECD Model Tax Convention on Income and on Capital (`Article 9`) and
  • the guidance in the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the `OECD Transfer Pricing Guidelines`).

 (see INTM421010)

The OECD is the Organisation for Economic Co-operation and Development, based in Paris. It is a forum for member countries to discuss and compare policy approaches to a wide range of issues, including taxation.