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HMRC internal manual

VAT Valuation Manual

HM Revenue & Customs
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Transfer Pricing - VAT implications: exemptions to Transfer Pricing rules

At the same time as FA 2004 extended the provisions of Sch28AA to UK-to-UK transactions, it introduced new exemptions (para 5A and B of Sch 28AA - now s165 and s166 of TIOPA 10) from the Transfer Pricing rules available for small and medium sized entities and also for pre-existing dormant companies. In respect of small to medium sized entities, provided the entities meet the size criteria, and provided the transactions are not with a connected entity in a territory without a double taxation agreement with the UK, then the basic transfer pricing rule can de disapplied. Limits currently are that a medium enterprise must have no more than 250 staff and also less than either a turnover of €50 million OR a Balance sheet total less than €43 million. If the entity is part of a group then the limits are applied to the entire group rather than just the specific entity.

The other exemption to Transfer Pricing introduced by FA 2004 applies to existing dormant companies which do not require an audit or make a tax return. Where companies were dormant for the whole accounting period to 31.03.2004, or the 3 months to 31.03.2004, then they are exempted from Transfer Pricing requirements for as long as they continue to be dormant. (Without this exemption an otherwise dormant Co. may have lost this status by it being required to receive or impute income for tax purposes).

As stated above, there is no requirement for businesses that are classed as Small or Medium sized enterprises to make Transfer Pricing Adjustments, however one of the parties may elect to apply the Transfer Pricing rules.