INTM433010 - Part 4 TIOPA 2010: Self Assessment obligations: Returns on the arm’s length principle

As has been seen in the chapter introducing Part 4 (INTM432000 onwards), the current transfer pricing legislation requires that for accounting periods ending on or after 1 July 1999 (and years of assessment from 1999/2000), returns should be made in accordance with the basic transfer pricing rule. This refers not to the pricing of transactions between the parties, but the computation for tax purposes. This means that taxpayers will be required to make computational adjustments in cases where transactions, as recorded in the accounts, are not on an arm's length basis and the taxpayer is potentially advantaged in respect of UK tax by the actual provision.

For periods ending on 31 March 2004 or before, there are no supplementary pages to the return relating to transfer pricing nor specific instructions within it, other than that overall rule. The normal Self-Assessment rules at Part II TMA 1970 and FA98/SCH18 apply. For periods ending on or after 1 April 2004 there is a tick box on the return form for taxpayers to confirm their eligibility for the small and medium sized enterprise exemption from the transfer pricing rule (see INTM432112), and a second tick box for taxpayers to claim compensating adjustments (see INTM432160).

Along with changes in taxpayer responsibilities regarding the basis on which the return is completed, Self Assessment brought in new rules regarding the creation and retention of records. There are rules of general application to all persons completing a Self Assessment return, plus specific record-keeping requirements to be observed where the return includes transactions with persons not at arm's length to the taxpayer. With regard to record keeping generally and specific requirements in relation to transfer pricing see INTM433020 onwards.