When does the transfer (pricing) window open?

The UK’s transfer pricing rules govern the prices charged in transactions between connected parties, the rationale being that in such circumstances the price charged may not necessarily be that which would have been charged if the parties had been independent of one another.  Whilst transfer pricing risks might most typically arise in cross border transactions, the UK transfer pricing legislation also applies to transactions where both parties are within the UK.

Do they apply to you?

 

SME exemption

The UK transfer pricing rules contain a helpful exemption for small or medium sized enterprises, as defined by the European Commission (see the table below). The definition applies to any entity engaged in an economic activity, irrespective of its legal form and includes entities subject to income tax as well as corporation tax. Where the entity is a member of a group these limits apply to the whole group, not just the specific entity.

And less than one of the following limits:

Maximum number of staff

Annual turnover

Balance sheet total

Small Enterprise
50
 €10 million
€10 million
Medium Enterprise
250
 €50 million
€43 million

 

However, notwithstanding the definitions set out above, HMRC may still issue a transfer pricing notice to a medium sized enterprise, requiring them to recalculate their taxable profits by applying an ‘arm’s length’ price to a particular transaction.In addition, the exemption does not apply with respect to transactions with related parties located in a jurisdiction with whom the UK does not have a tax treaty with an appropriate non-discrimination article – transactions with Jersey, Guernsey and the Isle of Man, for example, are all brought within the rules.

The exemption is tested on an annual basis and therefore businesses which are rapidly expanding will need to be mindful of the limits, understand how and when the rules might apply and plan accordingly.

 

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