INTM414230 - The participation condition: Participation - agreements for common management

S162A Agreements for common management

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

The scope of the UK’s participation condition can lead to non-arm's length provisions escaping the requirement to comply with the UK transfer pricing rules.

TIOPA10/S162A introduces a new form of direct participation. It is met where two persons are the subject of an arrangement for common management.

Detailed explanation of how the provision operates

This form of direct participation is designed to capture certain common management arrangements whereby two separate groups, with separate ownership structures, agree to operate as a single economic entity, with the same management.

If Person A and Person B are the subject of common management arrangements, then each person is treated as having control of the other for transfer pricing purposes (even though there is no formal common ownership).

Under TIOPA10/S162A, common management arrangements are those that:

  • result in A and B being managed by the same person or group of persons, and
  • include a mechanism that it is reasonable to suppose is intended to secure that the economic interests of shareholders in A and B are aligned

An arrangement includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable. Its purpose is to ensure that the management of both person A and B is undertaken by the same person or group or persons.

This provision is designed to capture these arrangements which can arise in structures like dual-headed groups or joint ventures with unified boards. For the purposes of TIOPA10/S162A, management means the senior decision makers and not day-to-day management.

HMRC does not intend for this form of direct participation to catch common management where that is an ordinary feature of commercial arrangements. For example, where an independent investment manager manages the investments of multiple persons and franchisor/franchisee relationships. The need for a mechanism to align economic interests is designed to ensure such commercial arrangements fall outside the scope of this test.

HMRC therefore expects agreements for common management to arise in limited circumstances. 

Example 1 - TIOPA10/S162A does not apply

Facts:

  • Fund A owns Company X (resident in Country X) and Fund B owns Company Y (resident in Country Y)
  • Fund A and Fund B are separate private equity funds, each with its own general partner (GP) and investor bases
  • Each GP has a management agreement with ManagementCo which provides services to the funds such as portfolio monitoring and performance reporting. ManagementCo does not coordinate or direct activities across Company X or Y
  • Company X and Company Y have separate boards, management teams, and shareholder groups. They do not share directors and have no agreement to operate as a single business
  • Any transactions between Company X and Company Y are negotiated independently and on arm’s length terms

 On these facts:

  • ManagementCo provides services at fund level only and it does not have authority to direct that Company X and Company Y act as one
  • There is no agreement or mechanism for Company X and Company Y to align their economic interests
  • Boards, executives, and decision-making processes of Company X and Company Y remain distinct
  • The existence of a shared service provider does not, by itself, create a risk of non-arm’s length provisions between Company X and Company Y

Based on these facts, there is no “agreement for common management” within the meaning of TIOPA10/S162A and the participation condition is not met.

Example 1 - TIOPA10/S162A applies

Facts:

  • Company A (resident in Country A) and Company B (resident in Country B) are listed entities in their respective countries and parties to a dual-listed company (DLC) arrangement
  • a binding equalisation agreement requires both companies to operate as a single business with shared economic outcomes
  • boards made up of senior decision makers are co-ordinated, with strategic decisions aligned, and governance documents mandate a unified conduct
  • shareholders have agreed to treat both entities as one single enterprise

Based on these facts, the participation condition would be considered to have been met. For example, there exists co-ordination of senior decision makers, aligned strategic decisions, and the arrangement provides for an alignment of economic interests. Where the criteria at TIOPA10/S147 is otherwise met, then transactions between Company A and Company B fall within UK transfer pricing rules and should be priced at arm’s length.

Commencement date

This amendment has effect for chargeable periods beginning on or after 1 January 2026.

Previous rule, including links as appropriate to current INTM

This is a new test for direct participation. See existing guidance on participation at INTM412060.