As part of the proposed reforms announced on Tax Administration and Maintenance Day 2023, the UK government is now consulting on potential changes to the UK legislation on transfer pricing, permanent establishments and diverted profits tax.
Transfer pricing will consider various issues – including the arm’s length principle, looking at how the comparison of actual provision made between two parties with the equivalent arm’s length provision ties in with the potentially wider scope of the OECD transfer pricing guidelines. The review will also look at whether the participation condition is sufficient to catch all situations where one party is under the influence of another (or, indeed, whether the condition should be removed completely, instead applying a pricing adjustment to all instances of mispricing which occur as a result of a special relationship between the parties) and the tax advantage rule which is intended to prevent adjustments in one jurisdiction which would give rise to non-taxation. The consultation will also consider UK to UK transfer pricing, asking ‘is it onerous and to what extent, and would providing a general exemption materially reduce the compliance burden?’
On the permanent establishment rules, the government is considering changing the definition of a UK PE and asks for views on the potential advantages and disadvantages of two options. Perhaps crucially, consultation question 20 asks whether unforeseen or unhelpful consequences are likely to flow from the way revised PE rules would interact with other existing UK tax legislation.
The key question on diverted profits tax is whether to remove DPT as a separate tax and instead bring it into the corporation tax regime.
As part of the proposed reforms announced on Tax Administration and Maintenance Day 2023, the UK government is now consulting on potential changes to the UK legislation on transfer pricing, permanent establishments and diverted profits tax.
Transfer pricing will consider various issues – including the arm’s length principle, looking at how the comparison of actual provision made between two parties with the equivalent arm’s length provision ties in with the potentially wider scope of the OECD transfer pricing guidelines. The review will also look at whether the participation condition is sufficient to catch all situations where one party is under the influence of another (or, indeed, whether the condition should be removed completely, instead applying a pricing adjustment to all instances of mispricing which occur as a result of a special relationship between the parties) and the tax advantage rule which is intended to prevent adjustments in one jurisdiction which would give rise to non-taxation. The consultation will also consider UK to UK transfer pricing, asking ‘is it onerous and to what extent, and would providing a general exemption materially reduce the compliance burden?’
On the permanent establishment rules, the government is considering changing the definition of a UK PE and asks for views on the potential advantages and disadvantages of two options. Perhaps crucially, consultation question 20 asks whether unforeseen or unhelpful consequences are likely to flow from the way revised PE rules would interact with other existing UK tax legislation.
The key question on diverted profits tax is whether to remove DPT as a separate tax and instead bring it into the corporation tax regime.
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