INTM432100 - TIOPA10 Part 4: how it works - Advantage in relation to UK taxation

Where the ‘basic pre-condition’ set out in TIOPA10/S147(1) is met, TIOPA10/S147(3) requires a person’s profits and losses to be calculated on the basis of the arm’s length rather than the actual provision but only if the actual provision confers a potential UK tax advantage on that person (TIOPA10/S147(2)(b)).

TIOPA10/S155 provides that there is a potential advantage in relation to UK taxation if a person's taxable profits for a chargeable period are reduced, or losses, expenses of management or group relief are increased as a result of non arm’s length transactions.

Often only one party to the transaction will be potentially advantaged by the actual provision, however, if both parties to the transaction are potentially advantaged by it, then both would need to make an adjustment. An adjustment under TIOPA10/S147 can only increase taxable profits or reduce a tax loss, never the opposite.