International - Transfer Pricing
On 17 March 2004 the Chancellor of the Exchequer confirmed proposed changes to the income tax and corporation tax rules on transfer pricing and thin capitalisation, including extending the scope of the rules to include transactions within the UK. Further information about these changes is available from our Tranfer Pricing page.
The existing guidance referred to below has not been updated to reflect
these proposed changes, which are subject to Parliamentary consideration
and approval. Draft guidance on the changes will be made as
it becomes available.
Transfer pricing concerns the terms that connected parties use when they conduct business with each other. The issue is of most importance for multinational groups that conduct business across international boundaries. The transfer pricing policy of such groups will often have a significant effect on the amount of profit or loss that is recognised in each of the countries in which they do business. For this reason, the issue of transfer pricing is of great importance both for multinational groups and for tax authorities around the world.
In common with most other industrialised countries, the UK has legislation that requires cross border trading and financial transactions between affiliated entities to be conducted according to the arm’s length standard. This means that the terms and pricing of such transactions undertaken in the course of conducting business (such as the sale and purchase of goods and services) and in the provision of finance (both borrowing and lending) should be the same as if the transactions had been between completely independent parties.
The arm’s length standard is internationally recognised and used by taxation authorities around the world. It is a standard that is promoted and developed in particular by the Organisation for Economic Co-operation and Development (OECD). The standard is stated at Article 9 of the OECD Model Convention and developed in the OECD 1995 Guidelines. International Division has played a full role in developing these Guidelines.
Click here for information on Transfer Pricing and Corporation Tax Self Assessment
Further information on transfer pricing is available from the following sources.
The 1995 OECD Guidelines on Transfer Pricing for Multinational Enterprises and Taxation Administrations. Available from to The Stationery Office Ltd in the UK or from the OECD at 2 rue Andre-Pascall, 75775 Paris Cedex, France.
Tax Bulletin August 1994. This provides guidance on Treaty Claims made in respect of interest paid to non-residents.
Tax Bulletin June 1995. This provides guidance on intra-group payments of interest.
Tax Bulletin June 1998. This provides further guidance on intra-group payments of interest.
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