INTM435030 - Transfer pricing: tax cases - Petrotim Securities Ltd v Ayres (41TC389)

The principle which emerged from Watson Brothers v Hornby (INTM435010) and Sharkey v Wernher (INTM435020) established what value should be given to an asset transferred between a trading and a non-trading activity. In the 1963 case of Petrotim Securities Ltd v Ayres the principle was developed further to encompass the treatment of a transaction not with oneself but with an associated company.

In this case, the company, which was a dealer in stocks and shares, sold part of its trading stock to an associated company at a gross under-value. The Court took the view that the transaction was entirely outside the scope of the company's ordinary trading activities so that, on the principle established by the earlier cases, the shares should be treated as having been sold at their market value. The case thereby determined how the profits of a trader within the scope of Case I Schedule D should be adjusted in transactions with a connected person who was not within its scope.