INTM414110 - Basic transfer pricing rules: Basic rules and interpretive provisions

S146 Application of this Part  

TIOPA10/Part 4 applies for corporation tax and income tax purposes.  

This section has not been amended.  

S147 – Tax calculations are to be based on arm’s length, not actual, provision 

TIOPA10/S147 contains the basic transfer pricing rule. 

The rule requires a person’s or persons’ profits and losses to be calculated for tax purposes by substituting an arm’s length provision for an actual provision if certain criteria are met, which are that: 

  • the ‘basic pre-condition’ is satisfied (TIOPA10/S147(2)(a)) and 

  • the actual provision confers on the person or persons a potential advantage in relation to UK taxation (TIOPA10/S147(2)(b) and (4)(b)). 

See INTM412020 for further information. 

TIOPA10/S147 has been amended to remove subsections (6)(e) and (f) which means that the transfer pricing rules can now directly adjust exchange gains and losses on loan relationships and derivative contracts in tax returns. Under the previous rules, such exchange gains and losses were adjusted via CTA09/S447 (loan relationships) and CTA09/S694 (derivative contracts). 

S149 Actual provision and affected persons  

The actual provision and affected persons have the meaning given by TIOPA10/S147(1). That is: 

“provision (“the actual provision”) has been made or imposed as between any two persons (“the affected persons”) by means of a transaction or series of transactions”. 

This section has not been amended. See INTM412050 for further information. 

 

S150 Transaction and series of transactions 

The term ‘transaction’ is widely defined (see TIOPA10/S150), to include arrangements, understandings and mutual practices (whether or not they are legally enforceable). 

This section has not been amended. See INTM412050 for further information. 

 

S151 Arm’s length provision  

The arm’s length provision is that which would have been made or imposed between independent enterprises. See INTM412040 and INTM412050 for further information. 

 

What has been amended, removed, or added in broad terms 

This section has been amended to clarify the application of the transfer pricing rules to transactions involving the transfer, or grant of a licence or other right, in respect of intangible fixed assets. It clarifies that: 

  • when determining the arm’s length price for cross-border transactions involving intangibles, the calculation is based on a cash equivalent amount, even if the actual consideration was non-monetary (for example, if the exchange was for shares) 

  • the rules are aligned with those at CTA09/S739(1A), which provides that where consideration is non-monetary, the amount to be brought into account is the equivalent in cash to the asset received, based on its market value. See CIRD48320 

The intention is not, however, to displace royalty-free licences, or to displace royalty streams with lump sum payments, where they have been agreed for genuine commercial reasons.  

Further details will be published in the CIRD guidance in due course on the effect of these amended provisions, including: 

  • CTA09/S739 

  • CTA09/S845-846 

  • CTA09/S849A 

  • CTA09/S857 

 

S155 Potential advantage in relation to United Kingdom taxation  

TIOPA10/S155 defines “potential advantage” in relation to UK taxation by considering whether the actual provision produces a tax advantage when compared to the provision which would have been agreed at arm’s length. 

This section has not been amended. See INTM413050 for further information. 

 

S156 Losses and profits  

At Finance Bill 2025-26 a small amendment was made to the scope of the losses which are to be considered in TIOPA10/Part 4. The update clarifies that the items listed in (a) to (h) are examples of “losses”, in respect of which relief may be given, rather than an exhaustive list.