Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 1 — Basic transfer-pricing rule
88

(8)
In this section “the tribunal” means the First-tier Tribunal or, where
determined by or under Tribunal Procedure Rules, the Upper Tribunal.
Part 4
Transfer pricing
Chapter 1
5
Basic transfer-pricing rule
146
Application of this Part
This Part applies for—
(a)
corporation tax purposes, and
(b)
income tax purposes.
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147
Tax calculations to be based on arm’s length, not actual, provision
(1)
For the purposes of this section “the basic pre-condition” is that—
(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,
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(b)
the participation condition is met (see section 148),
(c)
the actual provision is not within subsection (7) (oil transactions), and
(d)
the actual provision differs from the provision (“the arm’s length
provision”) which would have been made as between independent
enterprises.
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(2)
Subsection (3) applies if—
(a)
the basic pre-condition is met, and
(b)
the actual provision confers a potential advantage in relation to United
Kingdom taxation on one of the affected persons.
(3)
The profits and losses of the potentially advantaged person are to be calculated
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for tax purposes as if the arm’s length provision had been made or imposed
instead of the actual provision.
(4)
Subsection (5) applies if—
(a)
the basic pre-condition is met, and
(b)
the actual provision confers a potential advantage in relation to United
30
Kingdom taxation (whether or not the same advantage) on each of the
affected persons.
(5)
The profits and losses of each of the affected persons are to be calculated for tax
purposes as if the arm’s length provision had been made or imposed instead
of the actual provision.
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(6)
Subsections (3) and (5) have effect subject to—
(a)
section 165 (exemption for dormant companies),
(b)
section 166 (exemption for small and medium-sized enterprises),
(c)
section 213 (this Part generally does not affect calculation of capital
allowances),
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Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 1 — Basic transfer-pricing rule
89

(d)
section 214 (this Part generally does not affect calculation of chargeable
gains),
(e)
section 447(5) and (6) of CTA 2009 (this Part generally does not affect
how exchange gains or losses from loan relationships are accounted
for), and
5
(f)
section 694(8) and (9) of CTA 2009 (this Part generally does not affect
how exchange gains or losses from derivative contracts are accounted
for).
(7)
The actual provision is within this subsection if it is made or imposed by means
of any transaction or deemed transaction in the case of which the price or
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consideration is determined in accordance with any of sections 225F to 225J of
ITTOIA 2005 or any of sections 281 to 285 of CTA 2010 (transactions and
deemed transactions involving oil treated as made at market value).
148
The “participation condition”
(1)
For the purposes of section 147(1)(b), the participation condition is met if—
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(a)
condition A is met in relation to the actual provision so far as the actual
provision is provision relating to financing arrangements, and
(b)
condition B is met in relation to the actual provision so far as the actual
provision is not provision relating to financing arrangements.
(2)
Condition A is that, at the time of the making or imposition of the actual
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provision or within the period of six months beginning with the day on which
the actual provision was made or imposed—
(a)
one of the affected persons was directly or indirectly participating in
the management, control or capital of the other, or
(b)
the same person or persons was or were directly or indirectly
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participating in the management, control or capital of each of the
affected persons.
(3)
Condition B is that, at the time of the making or imposition of the actual
provision—
(a)
one of the affected persons was directly or indirectly participating in
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the management, control or capital of the other, or
(b)
the same person or persons was or were directly or indirectly
participating in the management, control or capital of each of the
affected persons.
(4)
In this section “financing arrangements” means arrangements made for
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providing or guaranteeing, or otherwise in connection with, any debt, capital
or other form of finance.
(5)
For the interpretation of subsections (2) and (3) see sections 157 to 163.

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 2 — Key interpretative provisions
90

Chapter 2
Key interpretative provisions
Meaning of certain expressions that first appear in section 147
149
“Actual provision” and “affected persons”
(1)
In this Part—
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“the actual provision”, and
“the affected persons”,

have the meaning given by section 147(1).
(2)
Subsection (1) does not apply if Chapters 1 and 3 to 6 apply in accordance with
section 205(2) to (4) (oil-related ring-fence trades) but, in that event, in this
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Part—
“the actual provision” means the provision mentioned in section
205(1)(b), and
“the affected persons” means the two persons mentioned in section 205(2).
(3)
Subsections (1) and (2) are subject to subsection (4).
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(4)
If the participation condition (see section 148) would not be met but for section
161 or 162 (cases in which actual provision relates, to any extent, to financing
arrangements), then in section 147(1)(d), (2)(b), (3), (4)(b) and (5) “the actual
provision” is a reference to the actual provision so far as relating to the
financing arrangements concerned.
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150
“Transaction” and “series of transactions”
(1)
In this Part “transaction” includes arrangements, understandings and mutual
practices (whether or not they are, or are intended to be, legally enforceable).
(2)
References in this Part to a series of transactions include references to a number
of transactions each entered into (whether or not one after the other) in
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pursuance of, or in relation to, the same arrangement.
(3)
A series of transactions is not prevented by reason only of one or more of the
matters mentioned in subsection (4) from being regarded for the purposes of
this Part as a series of transactions by means of which provision has been made
or imposed as between any two persons.
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(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
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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 section “arrangement” means any scheme or arrangement of any kind
(whether or not it is, or is intended to be, legally enforceable).
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Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 2 — Key interpretative provisions
91

151
“Arm’s length provision”
(1)
In this Part “the arm’s length provision” has the meaning given by section
147(1).
(2)
For the purposes of this Part, the cases in which provision made or imposed as
between any two persons is to be taken to differ from the provision that would
5
have been made as between independent enterprises include the case in which
provision is made or imposed as between two persons but no provision would
have been made as between independent enterprises; and references in this
Part to the arm’s length provision are to be read accordingly.
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Arm’s length provision where actual provision relates to securities
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(1)
This section applies where—
(a)
both of the affected persons are companies, and
(b)
the actual provision is provision in relation to a security issued by one
of those companies (“the issuing company”).
(2)
Section 147(1)(d) is to be read as requiring account to be taken of all factors,
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including—
(a)
the question whether the loan would have been made at all in the
absence of the special relationship,
(b)
the amount which the loan would have been in the absence of the
special relationship, and
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(c)
the rate of interest and other terms which would have been agreed in
the absence of the special relationship.
(3)
Subsection (2) has effect subject to subsections (4) and (5).
(4)
If—
(a)
a company (“L”) makes a loan to another company with which it has a
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special relationship, and
(b)
it is not part of L’s business to make loans generally,

the fact that it is not part of L’s business to make loans generally is to be
disregarded in applying subsection (2).
(5)
Section 147(1)(d) is to be read as requiring that, in the determination of any of
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the matters mentioned in subsection (6), no account is to be taken of (or of any
inference capable of being drawn from) any guarantee provided by a company
with which the issuing company has a participatory relationship.
(6)
The matters are—
(a)
the appropriate level or extent of the issuing company’s overall
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indebtedness,
(b)
whether it might be expected that the issuing company and a particular
person would have become parties to a transaction involving—
(i)
the issue of a security by the issuing company, or
(ii)
the making of a loan, or a loan of a particular amount, to the
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issuing company, and
(c)
the rate of interest and other terms that might be expected to be
applicable in any particular case to such a transaction.