Transfer Pricing: an 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'.

This guide will give you an overview of Transfer Pricing, the UK legislation and exemptions.

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Basic principles of the UK's Transfer Pricing legislation

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.

Read about Transfer Pricing in the International Manual

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Transfer Pricing and 'the arm's length principle'

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.

Find detailed guidance on the 'arm's length' principle

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An exemption for small and medium sized enterprises

There's an exemption that will apply for most small and medium sized enterprises. The conditions attached to this exemption can be found in HMRC's International Manual.

A 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.

A 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.

Read about exemptions for small and medium sized enterprises in the International Manual

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More useful links

Further detailed guidance on Transfer Pricing issues in the International Manual

Transfer Pricing statistics (PDF 36K)

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