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Finance Act 2014

Section 75: Transfer Pricing: Restriction on Claims for Compensation Adjustments

Summary

1.This section introduces amendments to the rules in Chapter 4 of Part 4 of Taxation (International and Other Provisions) Act 2010 limiting the circumstances in which a claim for a compensating adjustment by a disadvantaged person may be made. It also clarifies the tax treatment of interest that has been subject to a transfer pricing adjustment.

Details of the Section

2.Subsection (3) of the new section inserts new section 174A. This section limits the effect of section 174 so that a claim for a compensating adjustment may not be made by a person (the disadvantaged person) that is within the charge to income tax to the extent that the person that is subject to the transfer pricing adjustment (the advantaged person) is a company.

3.Subsection (4) of the section inserts new section 187A and sets out the tax treatment of interest where new section 174A limits the ability of the disadvantaged person to make a compensating adjustment claim. Where the specified conditions are met, new section 187A treats the non-arm’s length interest that is subject to the transfer pricing adjustment as a qualifying distribution.

4.Subsections (5) and (6) state that the amendments will affect amounts arising on or after 25 October 2013 but that they will not apply to interest that is, in accordance with generally accepted accounting practice, referable to a period before that date.

Background Note

5.The intention to introduce this legislation was announced by the Exchequer Secretary to the Treasury in a Written Ministerial Statement on 25 October 2013. This section and an HMRC technical note were published on the same day. The amendments set take effect from that day.

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