Transfer pricing adjustments and penalties

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Corporation Tax

Guidance

As explained in the HMRC approach to transfer pricing enquiries guidance note, taxpayers are required to make a transfer pricing adjustment in their UK tax return if an increase in taxable profits or reduction in allowable losses would arise from arm’s length pricing being applied to transactions with connected parties, when compared to the actual pricing that has been applied by the parties. Taxpayers are not permitted to make an adjustment which results in decreased taxable profits or greater allowable losses, unless they believe they are not being taxed in accordance with the terms of a UK double taxation agreement and seek action under the Mutual Agreement Procedures.

Compensating adjustments

If the adjustment to be made is between UK companies or individuals (a ‘UK-to-UK adjustment’) the 'disadvantaged person' involved in the transaction is able to calculate their tax by making a 'compensating adjustment' to their taxable profits or losses.

The following criteria must be met for such an adjustment to be made:

•
only one of the parties to the actual provision made is an advantaged

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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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