Business tax – guidance

Transfer pricing: transactions between connected companies

How transactions between connected companies should be priced for UK tax purposes.

Overview

The UK’s transfer pricing legislation details how transactions between connected parties are handled and in common with many other countries is based on the internationally recognised ‘arm’s length principle’.

The UK legislation allows only for a transfer pricing adjustment to increase taxable profits or reduce a tax loss. It is not possible to decrease profits or increase a tax loss.

The UK’s transfer pricing legislation also applies to transactions between any connected UK entities.

The ‘arm’s length principle’ applies to transactions between connected parties. For tax purposes such transactions are treated by reference to the profit that would have arisen if the transactions had been carried out under comparable conditions by independent parties.

Exemptions

There’s an exemption that will apply for most small and medium sized enterprises.

Your business is a ‘small’ enterprise if it has no more than 50 staff and either an annual turnover or balance sheet total of less than €10 million.

Your business is a ‘medium sized’ enterprise if it has no more than 250 staff and either an annual turnover of less than €50 million or a balance sheet total of less than €43 million.

Further information

Detailed guidance on Transfer Pricing issues