Where someone has transactions with a connected party, then
transfer pricing and thin capitalisation rules may require tax to
be calculated on the basis of what the ‘arms length’
provision would have been - if the actual provision confers a tax
advantage in comparison with the ‘arms length’ result.
For the calculation of profits arising on or after 1 April
2004, transfer pricing and thin capitalisation rules apply to
transactions between UK taxpayers, as well as cross border
transactions (which the rules already covered). At the same time,
an exemption came into operation in respect of calculating profits
arising on or after 1 April 2004 for most transactions by small and
medium- sized enterprises (as assessed on a ‘group’
basis).
Details of the new transfer pricing rules are set out at
INTM430000 onwards and INTM460000 onwards.
Guidance on thin capitalisation is at INTM560000 onwards (for
the period since 1 April 2004) and at INTM540000 onwards (for
earlier periods).
