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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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Transfer pricing: legislation: rules: exemptions: small and medium sized enterprises

SME exemption

For the calculation of profits arising on or after 1 April 2004, TIOPA10/S166 provides an exemption from transfer pricing rules for the vast majority of transactions carried out by a business that is a small or medium sized enterprise.

What constitutes a small and medium sized enterprise for this purpose is a modification of the European recommendation (2003/361/EC). Details are at INTM412080.

Exceptions - transactions with parties in non-qualifying territories

The exemption does not apply where a business has transactions with or provisions which include a related business in a territory with which the UK does not have a double tax treaty with an appropriate non-discrimination article. TIOPA10/S167(3) keeps such transactions subject to transfer pricing rules.

An appropriate non-discrimination article is one that ensures the nationals of a contracting state may not be less favourably treated in the other contracting state than nationals of that latter state in the same circumstances (in particular with respect to residence). A list of the double taxation treaties that HMRC regards as containing an appropriate non discrimination article as at 1st April 2011 (except where stated otherwise) is at INTM412090.

The Treasury has the power to make regulations adding to the list of territories that qualify even if the double taxation treaty in question does not contain an appropriate non-discrimination article, or to exclude territories even if the treaty in question does contain such an article.

Exceptions - Transfer pricing notice given to medium sized enterprise

HMRC may issue a transfer pricing notice to a medium sized enterprise to require that person to calculate their taxable profits applying transfer pricing to the provision specified in the notice. In any case where case teams think such a notice might be appropriate they must make a referral to CTIAA Business International.

Exceptions - Election to remain subject to transfer pricing rules

There may be occasions where a business wishes to apply transfer pricing rules even though it would qualify for exemption. A business can elect that the exemption will not apply. An irrevocable election can be made for a specified chargeable period and will cover all transactions or provisions made in that period.

Exceptions - Patent Box

Where a SME is party to a transaction that is relevant to a patent box claim HMRC may issue a notice to require that person to compute their profits in accordance with transfer pricing in respect of that provision. In any case where case teams think such a notice might be appropriate they must make a referral to Business International.