INTM432010 - TIOPA10 Part 4: how it works - Overview

TIOPA10/Part 4 restates the requirement introduced by ICTA88/SCH28AA to make a return in accordance with arm's length principle in respect of intra-group transactions.

The legislation applies where the provision between two connected persons differs from the arm’s length provision, and profits used to calculate UK tax are reduced (or losses are increased) as a result of that provision. The broad effect is to treat connected persons as if they had done business with each other on the same basis as independent persons dealing at arm's length - the ‘arm’s length principle’.

The wording of this legislation is aligned with Article 9 (the ‘Associated Enterprises Article’) of the OECD Model Tax Convention on Income and on Capital. TIOPA10/Part 4 restates the Schedule 28AA-introduced idea of 'provision made or imposed as between any two persons....', and this formulation reflects the broader concerns of Article 9, which talks of '…conditions made or imposed between two enterprises...'

However, close conformity to OECD Transfer Pricing Guidelines does not mean that in every case HMRC takes a 'broad view' rather than looking at the prices of individual transactions. On the contrary, TIOPA10/Part 4 (previously ICTA88/SCH28AA) is based on transactions, since the 'provision' referred to above has to be made or imposed 'by means of a transaction or series of transactions'; and the OECD Transfer Pricing Guidelines (in accordance with which this legislation is to be construed - see INTM432030) approve transactional methods of ascertaining an arm's length price.

It is important that you familiarise yourself with the OECD Transfer Pricing Guidelines (HMRC readers may access the Guidelines from the side bar of this page) when you pursue a transfer pricing enquiry.