HMRC approach to transfer pricing enquiries

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Corporation Tax

Guidance

UK connected parties are required to self-assess their transfer pricing position when filing their tax returns by using what is known as the ‘arm's length principle’. Transfer pricing rules in the UK require that transactions between connected parties should be recognised for tax purposes by applying the amount of profit that would have arisen if the same transaction had been carried out by unconnected third parties. Where lower taxable profits or greater allowable losses would result from an actual transaction as compared to a calculation based on a theoretical arm’s length relationship, each entity will be regarded as an ‘advantaged person’. These advantaged persons are required to identify the relevant transactions and make transfer pricing adjustments when submitting their tax returns to HMRC.

Please refer to the Transfer pricing rules ― overview guidance note for further background on the UK transfer pricing regime and the types of transactions which may be caught by these rules.

In common with the general way HMRC approaches their relationships with large businesses, a risk assessment

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Anne Fairpo

Barrister

With effect from 1 June 2021, Anne Fairpo is a judge of the First-tier Tribunal sitting in the Tax Chamber. She was previously a fee-paid judge in the same Chamber. Her contributions to LexisPSL Tax and TolleyGuidance were written before her full-time appointment and are her personal view as she is not authorised to write on behalf of the Tribunals Service or the judiciary. Until April 2021, Anne was a tenant at Temple Tax Chambers. She was called to the bar in 2009 after 15 years as a solicitor. Anne’s experience and expertise covers UK and international corporate tax planning and disputes, having acted for a range of clients from small owner-managed businesses to listed multinationals, as well as having advised on intellectual property taxation and UK-US cross-border tax planning, with regard to both direct and indirect tax matters

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