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HMRC internal manual

International Manual

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


The best way to consider what is meant by a series of transactions (see INTM412050 on the meaning of ‘transactions’) is to look at some particular examples.

Inserting a third party in the provision


An enquiry into all aspects of a transaction produces the following information. The provision is the supply of goods from an affiliate in a low tax state to an affiliate UK Distributor. The provision is effected by means of a series of transactions:

  • The supplier, having acquired the product for £30, sells it to Third Party for £74, making a profit of £44 on the transaction. The supplier in the low tax territory does not actually take delivery of the product, neither does Third Party. It is delivered directly to UK Distributor. The supplier does not do any manufacturing or marketing.
  • Third Party agrees to sell the product on to UK Distributor for £75.
  • UK Distributor sells the product to the Customer for £100, profiting by £5 on the transaction after the costs of extensive marketing.

Such transactions should be scrutinised very carefully. Evidence of whether a third party would enter into them will be required. Consider whether the parties involved are receiving the arm’s length reward for the functions carried out.

Even if the chain were made longer by inserting more third parties, there would still be a provision by way of a series of transactions between the two connected persons.


Guaranteed bank loan

A bank extends a loan to a UK business under a guarantee from its overseas parent. In the scenario presented in the diagram, UK Subsidiary could borrow £10 million if it was an independent company. Due to the guarantee given by Overseas Parent, it borrows £200 million to buy Target.


The provision of the bank loan is given effect by a series of transactions. The first transaction is the guarantee given by Overseas Parent to the bank. The second transaction is the bank granting the £200 million loan to UK Subsidiary. The two connected parties, Overseas Parent and UK Subsidiary, are at the ends of the series of transactions.

While there is no direct transaction between Overseas Parent and UK Subsidiary, look at the provision and question whether the bank loan would have been made (either wholly or partly) without the parental guarantee.

Provision where one of the persons is not party to a transaction

Share options are a valuable remuneration tool and multinational enterprises often establish offshore trusts to provide the shares to the employees. In the example below the trust grants UK Plc’s senior employees options to buy shares in UK Plc. The trust also grants share options to the senior employees of US Inc, Germany GmbH and France SA.

The trust is established by UK Plc, which appointed trustees resident in a low tax state. UK Plc makes interest free loans to the trust, which uses the money to buy shares in UK Plc, as a hedge against the options. When the options are exercised the loans are repaid.

There are a series of transactions

  • Trust grants options to UK Plc’s own employees and to UK Plc’s subsidiaries’ employees to buy UK Plc shares at a set date in the future at a set price.
  • UK Plc lends money interest free to Trust.
  • Trust buys sufficient shares to hedge the shares it needs to sell to the employees when they exercise their options.

The overseas subsidiaries have not actually entered into any transactions with UK Plc, but because of the series of transactions, which benefits their employees, there is a provision between UK plc and those subsidiaries. UK Plc has provided the means by which the other companies’ employees can be rewarded with valuable share options. This is something that third parties would be prepared to pay for at arm’s length.