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HMRC internal manual

International Manual

HM Revenue & Customs
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Transfer pricing: Types of transactions: Leasing

Transactions involving leasing

The transfer pricing legislation applies to leasing transactions between connected parties. Certain transactions may fall under the capital allowances code, which has its own connected persons rules.

Generally the capital allowance code works by giving capital allowances to the owner of an asset. In certain cases, such as hire purchase, the lessee is treated as the owner of the asset and can claim capital allowances.

While in substance a finance lease is a loan, the tax treatment of finance leases is to treat them as agreements for the hire of an asset. A lessee can generally claim a deduction covering the interest element and the hire element of the agreement (i.e. the lease payment) in full. Such charges can fall within the scope of TIOPA10/Part 4.

It is good practice to review all the facts and circumstances surrounding any intra-group leasing arrangements. It’s possible that these might indicate that such arrangements would have been different at arm’s length.