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Scope of this Practice Note

Transfer pricing relates to the pricing of goods, services, funds and assets provided within a group and between connected parties. As the prices are set with the mutual agreement of the parties, they are not subject to the normal market pressures that establish prices for similar transactions between third parties. Therefore, one of the parties may receive a tax advantage as a result of the provision not being at arm’s length, eg where that party’s taxable Profits have been reduced or its tax losses increased. The transfer pricing rules require that, in such circumstances, the profits and losses of the potentially tax advantaged person must be adjusted for tax purposes by applying the amount of taxable profit that would have arisen if the transaction had been carried out by unconnected parties on an arm’s length basis.

This Practice Note provides an overview of how UK transfer pricing rules apply to the intra-group provision of employee share incentive Plans, in relation to both those plans that operate over newly issued