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HMRC internal manual

International Manual

HM Revenue & Customs
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Transfer pricing: legislation: rules: Balancing payments

Treatment of balancing payments

Although a compensating adjustment enables a disadvantaged person to calculate their tax on a consistent basis with an advantaged person who has had their profits adjusted by transfer pricing, it does not change the cash position of the companies.

To the extent that they do not exceed the decrease in profits from the compensating adjustment, TIOPA10/S196 provides for balancing payments to be neither a taxable receipt nor an allowable expense, in particular they are not regarded as distributions. The relevant criteria must be met:

  • only one of the parties to the provision is an is an advantaged person in respect of that provision; and
  • the other affected person is within the charge to income or corporation tax in respect of the relevant profits; and
  • one or more payments are made by the disadvantaged person to the advantaged person; and
  • the sole or main reason for the payment(s) is the transfer pricing adjustment under TIOPA10/S147(3) or (5) in respect of the advantaged person.

There is no obligation to make a balancing payment.