Enterprises - Sch 28AA

The report on the TaxAid conference by Rebecca Cave referred to a warning issued by Marion Hodgkiss regarding transfer pricing. It seems that in the north west HMRC are using the transfer pricing legislation in order to disallow part of the interest on a loan provided by an individual shareholder; the basis being that the debt to equity ratio within the business is uncommercial.

The point is made that the SME carve out does not apply on a loan between a company and individual rather than between two companies.

Readers may wish to consider HMRC's International Manual INTM 432090. Here it is made expressly clear that Sch 28AA para 2 should be interpreted in accordance with the OECD model convention as interpreted by the OECD transfer pricing guidelines.

These guidelines set out the arm's length principle by reference to conditions made or imposed between enterprises and an enterprise...