Secondary adjustment to transfer pricing rules

HMRC is consulting on whether a secondary adjustment rule should be introduced into the transfer pricing legislation.

The rules at TIOPA 2010 Part 4 calculate the taxable profits on the price that would have been charged at arm’s length. If the transfer pricing is not arm’s length and a potential tax advantage has been obtained a ‘primary adjustment’ has to be made to the original price. This is effective for tax but does not address the additional cash benefit achieved from non-arm’s length pricing of the underlying transaction.

A secondary adjustment rule that applies a tax charge on the excess cash arising on non-arm’s length pricing would address this benefit.

Full details of the consultation can be found here. Responses should be emailed here18 August 2016.

Meanwhile the number of investigations into big companies that HMRC suspects of using transfer pricing to avoid...