Transfer Pricing - VAT implications: application of Transfer Pricing rules
A business has a choice in the way it applies transfer pricing rules.
- It might ensure that its transactions with associated businesses are recorded in its accounts at an “arm’s length” result, including the charging out of services. If this is done, the correct results should be reflected in the direct Tax computation and there would be no need to be concerned with Transfer Pricing Adjustments, compensating adjustments or Balancing Payments.
- It might, however, make Transfer Pricing Adjustments in converting the results recorded in its accounts into a computation of taxable profits for direct Tax. This might happen where it was costly or inconvenient to establish an “arm’s length” result at the time of the transaction, or where there was a reason to record the results of transactions on a different basis in the accounts.