 | |
|
SCHEDULE 16
|
| |
TRANSFER PRICING ETC: NEW REGIME |
| | The Schedule inserted after Schedule 28A to the Taxes Act 1988 is as follows:-
|
|
"SCHEDULE 28AA
|
 |
PROVISION NOT AT ARM'S LENGTH |
| |
Basic rule on transfer pricing etc. |
| | 1. - (1) This Schedule applies where-
|
| |
(a) provision ("the actual provision") has been made or imposed as between any two persons ("the affected persons") by means of a transaction or series of transactions, and |
| |
(b) at the time of the making or imposition of the actual provision- |
| |
(i) one of the affected persons was directly or indirectly participating in the management, control or capital of the other; or
|
| |
(ii) the same person or persons was or were directly or indirectly participating in the management, control or capital of each of the affected persons.
|
| |
(2) Subject to paragraphs 8, 10 and 13 below, if the actual provision-
|
| |
(a) differs from the provision ("the arm's length provision") which would have been made as between independent enterprises, and |
| |
(b) confers a potential advantage in relation to United Kingdom taxation on one of the affected persons, or (whether or not the same advantage) on each of them, |
| |
the profits and losses of the potentially advantaged person or, as the case may be, of each of the potentially advantaged persons shall be computed for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision.
|
| |
(3) For the purposes of this Schedule the cases in which provision made or imposed as between any two persons is to be taken to differ from the provision that would have been made as between independent enterprises shall include the case in which provision is made or imposed as between any two persons but no provision would have been made as between independent enterprises; and references in this Schedule to the arm's length provision shall be construed accordingly.
|
| |
Principles for construing rules in accordance with OECD principles |
| | 2. - (1) This Schedule shall be construed (subject to paragraphs 8 to 11 below) in such manner as best secures consistency between-
|
| |
(a) the effect given to paragraph 1 above; and |
| |
(b) the effect which, in accordance with the transfer pricing guidelines, is to be given, in cases where double taxation arrangements incorporate the whole or any part of the OECD model, to so much of the arrangements as does so. |
| |
(2) In this paragraph "the OECD model" means-
|
| |
(a) the rules which, at the passing of this Act, were contained in Article 9 of the Model Tax Convention on Income and on Capital published by the Organisation for Economic Co-operation and Development; or |
| |
(b) any rules in the same or equivalent terms. |
| |
(3) In this paragraph "the transfer pricing guidelines" means-
|
| |
(a) all the documents published by the Organisation for Economic Co-operation and Development, at any time before 1st May 1998, as part of their Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations; and |
| |
(b) such documents published by that Organisation on or after that date as may for the purposes of this Schedule be designated, by an order made by the Treasury, as comprised in the transfer pricing guidelines. |
| |
Meaning of "transaction" and "series of transactions" |
| | 3. - (1) In this Schedule "transaction" includes arrangements, understandings and mutual practices (whether or not they are, or are intended to be, legally enforceable).
|
| |
(2) References in this Schedule to a series of transactions include references to a number of transactions each entered into (whether or not one after the other) in pursuance of, or in relation to, the same arrangement.
|
| |
(3) A series of transactions shall not be prevented by reason only of one or more of the matters mentioned in sub-paragraph (4) below from being regarded for the purposes of this Schedule as a series of transactions by means of which provision has been made or imposed as between any two persons.
|
| |
(4) Those matters are-
|
| |
(a) that there is no transaction in the series to which both those persons are parties; |
| |
(b) that the parties to any arrangement in pursuance of which the transactions in the series are entered into do not include one or both of those persons; and |
| |
(c) that there is one or more transactions in the series to which neither of those persons is a party. |
| |
(5) In this paragraph, "arrangement" means any scheme or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable).
|
| |
Participation in the management, control or capital of a person |
| | 4. - (1) For the purposes of this Schedule a person is directly participating in the management, control or capital of another person at a particular time if, and only if, that other person is at that time-
|
| |
(a) a body corporate or a partnership; and |
| |
(b) controlled by the first person. |
| |
(2) For the purposes of this Schedule a person ("the potential participant") is indirectly participating in the management, control or capital of another person at a particular time if, and only if-
|
| |
(a) he would be taken to be directly so participating at that time if the rights and powers attributed to him included all the rights and powers mentioned in sub-paragraph (3) below that are not already attributed to him for the purposes of sub-paragraph (1) above; or |
| |
(b) he is, at that time, one of a number of major participants in that other person's enterprise. |
| |
(3) The rights and powers referred to in sub-paragraph (2)(a) above are-
|
| |
(a) rights and powers which the potential participant is entitled to acquire at a future date or which he will, at a future date, become entitled to acquire; |
| |
(b) rights and powers of persons other than the potential participant to the extent that they are rights or powers falling within sub-paragraph (4) below; |
| |
(c) rights and powers of any person with whom the potential participant is connected; and |
| |
(d) rights and powers which for the purposes of sub-paragraph (2)(a) above would be attributed to a person with whom the potential participant is connected if that connected person were himself the potential participant. |
| |
(4) Rights and powers fall within this sub-paragraph to the extent that they-
|
| |
(a) are required, or may be required, to be exercised in any one or more of the following ways, that is to say- |
| |
(i) on behalf of the potential participant;
|
| |
(ii) under the direction of the potential participant; or
|
| |
(iii) for the benefit of the potential participant;
|
| |
and |
| |
(b) are not confined, in a case where a loan has been made by one person to another, to rights and powers conferred in relation to property of the borrower by the terms of any security relating to the loan. |
| |
(5) In sub-paragraphs (3)(b) to (d) and (4) above, the references to a person's rights and powers include references to any rights or powers which he either-
|
| |
(a) is entitled to acquire at a future date, or |
| |
(b) will, at a future date, become entitled to acquire. |
| |
(6) In paragraph (d) of sub-paragraph (3) above, the reference to rights and powers which would be attributed to a connected person if he were the potential participant includes a reference to rights and powers which, by applying that paragraph wherever one person is connected with another, would be so attributed to him through a number of persons each of whom is connected with at least one of the others.
|
| |
(7) For the purposes of this paragraph a person ("the potential major participant") is a major participant in another person's enterprise at a particular time if at that time-
|
| |
(a) that other person ("the subordinate") is a body corporate or partnership; and |
| |
(b) the 40 per cent. test is satisfied in the case of each of two persons who, taken together, control the subordinate and of whom one is the potential major participant. |
| |
(8) For the purposes of this paragraph the 40 per cent. test is satisfied in the case of each of two persons wherever each of them has interests, rights and powers representing at least 40 per cent. of the holdings, rights and powers in respect of which the pair of them fall to be taken as controlling the subordinate.
|
| |
(9) For the purposes of this paragraph-
|
| |
(a) the question whether a person is controlled by any two or more persons taken together, and |
| |
(b) any question whether the 40 per cent. test is satisfied in the case of a person who is one of two persons, |
| |
shall be determined after attributing to each of the persons all the rights and powers attributed to a potential participant for the purposes of sub-paragraph (2)(a) above.
|
| |
(10) References in this paragraph-
|
| |
(a) to rights and powers of a person, or |
| |
(b) to rights and powers which a person is or will become entitled to acquire, |
| |
include references to rights or powers which are exercisable by that person, or (when acquired by that person) will be exercisable, only jointly with one or more other persons.
|
| |
(11) For the purposes of this paragraph two persons are connected with each other if-
|
| |
(a) one of them is an individual and the other is his spouse, a relative of his or of his spouse, or the spouse of such a relative; or |
| |
(b) one of them is a trustee of a settlement and the other is- |
| |
(i) a person who in relation to that settlement is a settlor; or
|
| |
(ii) a person who is connected with a person falling within sub-paragraph (i) above.
|
| |
(12) In sub-paragraph (11) above-
|
| |
"relative" means brother, sister, ancestor or lineal descendant; and |
| |
"settlement" and "settlor" have the same meanings as in Chapter IA of Part XV. |
