This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Transfer Pricing

Milbo
Posts: 45
Joined: Wed Aug 06, 2008 4:07 pm

Transfer Pricing

Postby Milbo » Wed Oct 22, 2014 2:08 pm

A group company (large for T.P. purposes) has provided funds to other group members or paid liabilities on their behalf.

The amounts are declared in the accounts of the companies as inter company balances and have accumulated over a number of years. There are no interest payments, repayment terms or arrangements in place.

Transfer Pricing appears to includes financial arrangements but excludes loan relationship debits and credits. As I understand it, if the balances are written off the transactions will be tax neutral i.e. no relief and no allowances.

My question is should the group be applying interest for Transfer Pricing purposes or can the balances be deemed to be excluded as loan relationship debits and credits?

Your thoughts would be appreciated.

simplytax
Posts: 85
Joined: Wed Aug 06, 2008 3:34 pm

Re: Transfer Pricing

Postby simplytax » Wed Oct 29, 2014 8:14 pm

See HMRC manuals re TP enquiries http://www.hmrc.gov.uk/manuals/intmanual/intm501020.htm

Why do you believe loan relationships are excluded from TP?

The intercompany balances are likely to comprise loan relationships where there have been cash advances ie lending of money or deemed LR where debts of one company paid by another on its behalf or trade debts that remain unsettled for lengthy periods that de-facto may be considered loans. ( See MJP Media v HMRC and surrounding commentary as to what may constitute a loan for LR purposes) .

Interest imputation on loans or balances outstanding providing credit in excess of that allowed to 3rd parties should be considered. The TP adjustment will give rise to taxable LR credit in the lender and a corresponding LR debit should be claimed by the borrower.

A group TP policy to apply commercial rates would avoid the need for TP adjustments.

If balances are to be written off then to rely on fiscal neutrality under LR rules where connected companies then you need to ensure the balances all fall within LR first or deemed to for certain purposes ( including impairments ) under Relevant non-lending relationships at Ch2 Part 6 CTA 2009.


Return to “Company Taxation”