(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 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.
(3) For the purposes of determining the arm’s length provision in relation to the actual provision involving—
(a) the transfer of intangible fixed assets for consideration other than money, or
(b) the grant of a licence or any other right in respect of intangible fixed assets for consideration other than money,
assume that the transfer or grant at arm’s length would be for consideration of a sum of money.
(4) For the purposes of subsection (3) “intangible fixed assets” has the meaning it has in Part 8 of CTA 2009.
153A Certain guarantees not capable of being arm’s length
Where—
(a) the actual provision includes provision for the borrowing of an amount,
(b) the amount would not have been lent between independent enterprises but for a guarantee, and
(c) such a guarantee was provided by a person with whom the borrower has a participatory relationship,
provision for the guarantee (to the extent it relates to the borrowing of that amount) is never to be regarded as arm’s length provision for the purposes of this Part.
(1) This section applies where the actual provision includes provision for the borrowing of an amount.
(2) A UK resident company (“the deemed guarantor”) with whom the borrower has a qualifying participatory relationship may elect to be treated, in relation to that borrowing—
(a) for the purposes of this Part (as it applies to the deemed guarantor, the borrower and any other person), and
(b) while the deemed guarantor is UK resident and has that relationship,
as having provided a guarantee in respect of so much of the borrowing as is excessive.
(3) Borrowing is excessive to the extent that it—
(a) would not have been lent between independent enterprises but for a guarantee, and
(b) was not the subject of such a guarantee.
(4) The election—
(a) applies at all times when the condition in subsection (2)(b) is met, from the beginning of the day on which the first chargeable period of the borrower for which the election is made commences, and
(b) is irrevocable (so continues indefinitely).
(5) The election—
(a) must specify the first chargeable period of the borrower for which the election is made,
(b) may not be made more than 4 years after the end of that period.
(6) Where the borrower is the subject of a discovery assessment in relation to a chargeable period of the borrower, the deemed guarantor may make an election for that period to be the first chargeable period of the borrower for which the election is made (despite subsection (5)(b)) at any time within the period of one year beginning with the making of that discovery assessment.
(7) Nothing in this section is to be taken as permitting the amendment of a return, or the making of any claim or election, in consequence of an election made under this section after the time for which that amendment, claim or other election could otherwise be made.
(8) Where the lender makes a claim under section 174 or a guarantor makes a claim under section 192 in relation to the provision for the borrowing before the election made under this section, the election only applies to so much of the excessive borrowing as is not taken account of in the calculation of that person’s profits and losses as a result of the claim.
(9) For the purposes of this section—
(a) a participatory relationship is “qualifying” if the participatory relationship does not arise only as a result of any of sections 148A (participation condition treated as met following transfer pricing notice) or 159 to 161 (indirect participation);
(b) “discovery assessment” means—
(i) an assessment under section 29(1) of TMA 1970, or
(ii) a discovery assessment or discovery determination under Schedule 18 to FA 1998 (company tax returns).
(10) See also Chapter 5 for provision about claims by a guarantor (which includes a person making an election under subsection (2)).
(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Any reference to a guarantee includes—
(a) a reference to a surety, and
(b) a reference to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the borrower has a reasonable expectation that in the event of a default by the borrower the person will be paid by, or out of the assets of, one or more companies.
(4A) But any implicit support is not to be regarded as a guarantee.
(5) A person has a participatory relationship with another person at any time if provision relating to financing arrangements made or imposed between them at that time would meet the participation condition in section 148.
(5A) “Borrowing” includes the issuing of a security.
(5B) “Implicit support” means any incidental benefit, in relation to borrowing by a company, that it is reasonable to assume would arise to the company as a result of it having a participatory relationship with one or more other companies.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155 “Potential advantage” in relation to United Kingdom taxation
(1) Subsection (2) applies for the purposes of this Part.
(2) The actual provision confers a potential advantage on a person in relation to United Kingdom taxation wherever, disregarding this Part, the effect of making or imposing the actual provision, instead of the arm's length provision, would be one or both of Effects A and B.
(3) Effect A is that a smaller amount (which may be nil) would be taken for tax purposes to be the amount of the person's profits for any chargeable period.
(4) Effect B is that a larger amount (or, if there would not otherwise have been losses, any amount of more than nil) would be taken for tax purposes to be the amount for any chargeable period of any losses of the person.
(5) In determining for the purposes of subsection (3) or (4) the amount that would be taken for tax purposes to be the amount of the profits or losses for a year of assessment in the case of a non-UK resident, there is to be left out of account any income of that person which is—
(a) disregarded income within the meaning given by section 813 of ITA 2007 (limits on liability to income tax of non-UK residents), or
(b) disregarded company income within the meaning given by section 816 of that Act.
(6) For the purposes of subsections (2) to (4)—
(a) Part 10 (corporate interest restriction),
(b) paragraph E of the list in section 1000(1) of CTA 2010 (excessive interest etc treated as a distribution),
are to be disregarded.
(1) In this Part “losses” includes amounts which are not losses but in respect of which relief may be given in accordance with the Tax Acts including (for example)—
(a) section 57 of ITTOIA 2005 (pre-trading expenses),
(b) section 88 of ITA 2007 (carry forward of certain interest),
(c) section 61 of CTA 2009 (pre-trading expenses),
(d) sections 387 to 391 of CTA 2009 (insurance companies: non-trading deficits on loan relationships),
(e) Chapter 16 or Chapter 16A of Part 5 of CTA 2009 (non-trading deficits on loan relationships),
(f) section 1223 of CTA 2009 (excess of management expenses), ...
(g) Part 5 of CTA 2010 (group relief) , or
(h) Part 5A of CTA 2010 (group relief for carried-forward losses).
(2) In this Part “profits” includes income.
(1) Subsection (2) applies for the purposes of—
(a) this Part (other than for the purposes of section 148A(1)(c)),
(b) in Part 2, section 132(7), ...
(c) in Part 5, section 219(2) , ...
(d) in Part 6A, section 259NB(4) , ... , and
(e) in Part 10, section 463(4)...
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) 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 firm, and
(b) controlled by the first person.
(3) See also section 162A, which provides for circumstance in which a person will be regarded as having control of another.
158 Indirect participation: defined by sections 159 to 161
(1) This section is about how to read the references, in this Part and in some other provisions of this Act, to indirect participation.
(2) For the purposes of sections 148(2) and (3) and 175, a person is indirectly participating in the management, control or capital of another person only if section 159, 160 or 161 so provides.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) For the purposes of—
(a) sections 154(5) and 204(4),
(b) in Part 2, section 132(7), ...
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , and
(d) in Part 6A, section 259NB(4),
a person is indirectly participating in the management, control or capital of another person only if section 159 or 160 so provides.
(5) For the purposes of section 219(2) (which is in Part 5), a person is indirectly participating in the management, control or capital of another person only if any of sections 159 to 162 so provide.
159 Indirect participation: potential direct participant
(1) Subsection (2) applies for the purposes of—
(a) sections 148(2) and (3), 154(5), 175 and 204(4),
(b) in Part 2, section 132(7), ...
(c) in Part 5, section 219(2) , ...
(d) in Part 6A, section 259NB(4) , ... , and
(e) in Part 10, section 463(4), ...
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) A person (“P”) is indirectly participating in the management, control or capital of another person (“A”) at a particular time if P would be directly participating in the management, control or capital of A at that time if the rights and powers attributed to P included all the rights and powers mentioned in subsection (3) that are not already attributed to P for the purpose of deciding under section 157 whether P is directly participating in the management, control or capital of A.
(3) The rights and powers referred to in subsection (2) are—
(a) rights and powers which P is entitled to acquire at a future date,
(b) rights and powers which P will, at a future date, become entitled to acquire,
(c) rights and powers of persons other than P so far as they are rights or powers falling within subsection (4),
(d) rights and powers of any person with whom P is connected (see section 163), and
(e) rights and powers which would be attributed by subsection (2) to a person with whom P is connected were it being decided under that subsection whether that connected person is indirectly participating in the management, control or capital of A.
(4) Rights and powers fall within this subsection so far as they—
(a) are required, or may be required, to be exercised in any one or more of the following ways—
(i) on behalf of P,
(ii) under the direction of P, or
(iii) for the benefit of P, 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 subsections (3)(c) to (e) and (4), the references to a person's rights and powers include references to any rights or powers which the person either—
(a) is entitled to acquire at a future date, or
(b) will, at a future date, become entitled to acquire.
(6) In paragraph (e) of subsection (3), the reference to rights and powers which would be attributed to a connected person includes a reference to rights and powers which, by applying that paragraph wherever one person is connected with another, would be so attributed to the connected person through a number of persons each of whom is connected with at least one of the others.
(7) References in this section—
(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.
160 Indirect participation: one of several major participants
(1) Subsection (2) applies for the purposes of—
(a) sections 148(2) and (3), 154(5), 175 and 204(4),
(b) in Part 2, section 132(7), ...
(c) in Part 5, section 219(2) , ...
(d) in Part 6A, section 259NB(4) , ...
(e) in Part 10, section 463(4)...
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) A person is indirectly participating in the management, control or capital of another person at a particular time if the first person is, at that time, one of a number of major participants in that other person's enterprise.
(3) For the purposes of this section, a person (“A”) 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 firm, and
(b) the 40% test is met in the case of each of two persons—
(i) who, taken together, control the subordinate, and
(ii) of whom one is A.
(4) For the purposes of this section, the 40% test is met in the case of each of two persons wherever each of them has interests, rights and powers representing at least 40% of the holdings, rights and powers in respect of which the pair of them fall to be taken as controlling the subordinate.
(5) For the purposes of this section—
(a) the question whether a person is controlled by any two or more persons taken together, and
(b) any question whether the 40% test is met in the case of a person who is one of two persons,
is to be determined after attributing to each of the persons all the rights and powers which would be attributed by section 159(2) to a person were it being decided under section 159(2) whether that person is indirectly participating in the management, control or capital of another person.
(6) References in this section—
(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.
161 Indirect participation: involvement in financing arrangements
(1) At any time this subsection applies, a person (“P”), with a qualifying interest in a body corporate or firm (“A”) is to be regarded as indirectly participating in the management, control or capital of A for the purposes of applying any of—
(a) section 148(2) or (3) (participation condition),
(b) section 175 (application of section 174 where guarantee disallowed), or
(c) section 219(2) (in Part 5),
in relation to provision comprising financing arrangements for A to which P and one or more other persons with a qualifying interest in A are party.
(2) Subsection (1) applies at any time if—
(a) one or more of those other persons act together (within the meaning given by subsection (4)) with P in relation to A, or have acted together in relation to A within the previous 6 months, and
(b) if all of the rights and powers of P and each of the persons mentioned in paragraph (a) were held by one person (“H”), that person would be taken to have control of A.
(3) In determining whether H would be taken to have control of A, the rights and powers of any person (and not just H) are to be taken to include those that would be attributed to that person by section 159(2) were it being decided under section 159(2) whether that person is indirectly participating in the management, control or capital of A.
(4) A person (“Q”) with a qualifying interest in another person (“B”), and another person (“U”) with such an interest, are to be regarded as acting together in relation to B if at any time while they both hold such an interest—
(a) Q and U are connected (within the meaning of section 163),
(b) for the purposes of influencing the conduct of B’s affairs—
(i) Q is able to secure that U acts in accordance with Q's wishes,
(ii) U can reasonably be expected to act, or typically acts, in accordance with Q's wishes,
(iii) U is able to secure that Q acts in accordance with U's wishes, or
(iv) Q can reasonably be expected to act, or typically acts, in accordance with U's wishes, or
(c) Q and U are party to any financing arrangements for B to which Q and U are party that—
(i) it is reasonable to suppose is designed to affect the value of any of U's or Q’s rights or interests in relation to B, or
(ii) relates to the exercise of any of U's or Q’s rights in relation to B.
(5) But for the purposes of subsection (4), ignore any rights or powers of Q that only arise as a result of loan made by Q and that are conferred in relation to property of U by the terms of any security relating to the loan.
(6) A person (“R”) has a qualifying interest in a company (“C”) if it is reasonable to suppose that—
(a) R possesses, or is entitled to acquire, any amount of the share capital or issued share capital of C,
(b) R possesses, or is entitled to acquire, any amount of the voting power in C, or
(c) if the whole of C's share capital were disposed of, R would receive (directly or indirectly and whether at the time of disposal or later) any amount of the proceeds of the disposal, other than as a result only of the terms of a normal commercial loan under which R is the creditor of C.
(7) A person (“R”) has an qualifying interest in a firm (“F”) if it is reasonable to suppose that, other than as a result only of the terms of a normal commercial loan under which R is the creditor of F—
(a) if the whole of the income of the firm were distributed, R would receive (directly or indirectly and whether at the time of the distribution or later) any amount of the distributed amount, or
(b) in the event of a winding-up of the firm or in any other circumstances, R would receive (directly or indirectly and whether or not at the time of the winding-up or other circumstances or later) any amount of F's assets which would then be available for distribution.
(8) In this section—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;
“financing arrangements” means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance;
“normal commercial loan” means a loan which is a normal commercial loan for the purposes of section 158(1)(b) or 159(4)(b) of CTA 2010.
(1) Where a person (“A”) and another person (“B”) are the subject of common management arrangements, each of A and B is to be treated, for the purposes of this Chapter, as having control of the other.
(2) Common management arrangements means arrangements that—
(a) result in the management of A and B by the same person or group of persons, and
(b) include a mechanism that it is reasonable to suppose is intended to secure that the economic interests of shareholders in A and B being aligned.
(3) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable.
162B Arrangements to avoid participation condition
(1) Any arrangements that would result in the participation condition not being met are to be disregarded if the main purpose, or one of the main purposes, of the arrangements is to secure that the participation condition is not met.
(2) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable.
163 Meaning of “connected” in sections 159 and 161
(1) Subsections (2) and (3) apply for the purposes of sections 159 and 161 and this section.
(2) Two persons are connected with each other if one of them is an individual and the other is—
(a) the individual's spouse or civil partner,
(b) a relative of the individual,
(c) a relative of the individual's spouse or civil partner, or
(d) the spouse, or civil partner, of a person within paragraph (b) or (c).
(3) Two persons are connected with each other if one of them is a trustee of a settlement and the other is—
(a) a person who in relation to that settlement is a settlor, or
(b) a person who is connected with a person within paragraph (a).
(4) In this section—
“relative” means brother, sister, ancestor or lineal descendant, and
“settlement” and “settlor” have the same meaning as in section 620 of ITTOIA 2005.
164 Part to be interpreted in accordance with OECD principles
(1) This Part is to be read in such manner as best secures consistency between—
(a) the effect given to sections 147(1)(a), (b) and (d) and (2) to (6), 148 , 148A , 154(5B) and 151(2), and
(b) the effect that would be given under double taxation arrangements that incorporate the OECD model in accordance with the transfer pricing guidelines.
(2) Subsection (1) has effect subject to—
section 147(1)(c) and (7) (oil-related provision to which Part does not apply),
sections 205 and 206 (rules for oil-related ring-fence trades), and
section 217(3) to (7) (provision for sales of oil),
...
.
(3) In this section “the OECD model” means the rules contained in Article 9 of the Model Tax Convention on Income and on Capital approved by the OECD Council on 18 November 2025, as interpreted in accordance with, or supplemented by, the OECD’s commentary on that Article, also approved on that date.
(4) In this section “the transfer pricing guidelines” means the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 published by the OECD on 20th January 2022 as interpreted in accordance with, or supplemented by, such documents as may be published by the OECD from time to time as are relevant to the application of those guidelines.
(4A) The reference to the Model Tax Convention approved on 18 November 2025, the OECD commentary approved on that date or the OECD Transfer Pricing Guidelines published on 20th January 2022, is to that document as it may be amended or replaced from time to time.
(4B) And each of those documents, and any other document referred to in subsection (4), is to be read in accordance with any reservation, declaration or election made by the United Kingdom in relation to that document.
(4C) The Treasury may by regulations make provision—
(a) for subsection (4A) not to apply in relation to any specified amendment or replacement of the OECD model or the OECD Transfer Pricing Guidelines,
(b) providing that the reference in subsection (4) to other documents is not to include any specified document, and
(c) about the effect of any provision of any document referred to in subsection (4) that has been published, amended or replaced on or after 26 November 2025 where that provision is elective (however expressed).
(5) In this section “double taxation arrangements” means arrangements that have effect under section 2(1) (double taxation relief by agreement with territories outside the United Kingdom).
(1) Section 147(3) and (5) do not apply in calculating, for a chargeable period of a potentially advantaged person, the profits and losses of that person in relation to actual provision that is qualifying UK to UK provision in relation to that person for that period.
(2) Actual provision is qualifying UK to UK provision in relation to a potentially advantaged person for a chargeable period of that person (“the relevant period”) if—
(a) the potentially advantaged person and the other affected person (whether or not also a potentially advantaged person) are both companies and are UK resident throughout the relevant period,
(b) the provision is relevant to the calculation of the profits and losses of both companies, and throughout the relevant period, any profits (if there are any) arising are chargeable to corporation tax,
(c) each company is charged to corporation tax on such profits at the same rate as the other company is charged on such profits,
(d) there is no time in the relevant period at which the reference currency used by one company in relation to the provision or a part of the provision differs from the reference currency used by the other in relation to the provision or that part,
(e) the actual provision does not comprise or include, a contract to which section 589 of CTA 2009 (contracts not derivative contracts because of underlying subject matter) applies in relation to one or other of the affected persons (but not both),
(f) no exemption adjustments under section 18A(1) of CTA 2009 (exemption for profits or losses of foreign permanent establishments) are made in respect of profits or losses arising from the relevant activities of the potentially advantaged person or the other affected person in calculating the taxable profits of that person,
(g) the actual provision is not patent box provision in relation to the relevant period, and
(h) neither the potentially advantaged person nor the other affected person is an excluded company at any time in the relevant period.
(3) For the purposes of subsection (2)(d) the “reference currency” used by a company in relation to provision, or part of a provision, means the currency by reference to which the profits of the company, so far as they relate to the provision or part, are calculated for corporation tax purposes.
(4) Actual provision is patent box provision in relation to the relevant period if—
(a) it results in at least one of the affected persons having relevant IP income (within the meaning of Part 8A of CTA 2010) for an accounting period of that person falling (wholly or partially) within the relevant period, and
(b) an election under section 357A of that Act applies to that company for that accounting period.
(5) A company is an excluded company at any time if—
(a) it carries on a ring fence trade (within the meaning of Part 8 of CTA 2010) at that time,
(b) it has previously carried on (and has ceased carrying on) a ring fence trade, it has incurred general decommissioning expenditure (within the meaning given by section 163 of CAA 2001) and the time falls within the post-cessation period (within the meaning given by section 165(2) of that Act),
(c) it carries on oil contractor activities (within the meaning of Part 8ZA of CTA 2010) as part of a trade at that time,
(d) it carries on basic life assurance and general annuity business (within the meaning of Part 2 of FA 2012) at that time,
(e) it is a tonnage tax company (within the meaning of Schedule 22 to FA 2000) at that time,
(f) it is a banking company (within the meaning of Part 7A of CTA 2010) in relation to the accounting period of the company in which that time falls,
(g) it is, at that time, a company incorporated in the United Kingdom to which section 236 of FISMA 2000 applies (open-ended investment companies),
(h) it is a unit trust scheme in respect of which an order under section 243 of FISMA 2000 (authorised unit trust schemes) is in force at that time (see also section 617 of CTA 2010 which treats the trustees of such a scheme as a UK resident company for the purposes of the Tax Acts),
(i) it is an investment trust (see section 1158 of CTA 2010) with respect to the accounting period of the company in which that time falls,
(j) it is, or is a member of, a UK REIT (within the meaning of Part 12 of CTA 2010) at that time,
(k) section 83(1) of FA 2005 (application of accounting standards to securitisation companies) applies to the company in relation to a period of account in which that time falls,
(l) it is, at that time, a securitisation company within the meaning of the Taxation of Securitisation Companies Regulations 2006 to which those regulations apply,
(m) it is, at that time, an insurance securitisation company within the meaning of the Taxation of Insurance Securitisation Companies Regulations 2007,
(n) it is, at that time, a qualifying transformer vehicle within the meaning of the Risk Transformation (Tax) Regulations 2017 (see regulation 3),
(o) it is a QAHC (within the meaning of Schedule 2 to FA 2022) at that time,
(p) it is, or is a member of, a generating undertaking (within the meaning of Part 5 of F(No.2)A 2023) to whom generation receipts or allowable costs are attributed, in accordance with that Part, for the qualifying period in which that time falls, or
(q) it is a residential property developer (within the meaning of Part 2 of FA 2022) that has residential property developer profits (within the meaning of that Part) for the accounting period of the company in which that time falls.
(6) Subsection (1) does not apply to qualifying UK to UK provision in relation to a potentially advantaged person for a chargeable period of that person if the person elects—
(a) that subsection (1) does not apply (in relation to the person) in respect of that provision, or
(b) that subsection (1) does not apply to the person for that period.
(7) An election under subsection (6) may not be revoked.
(8) Subsection (1) also does not apply to qualifying UK to UK provision in relation to a potentially advantaged person for a chargeable period of that person if the Commissioners for His Majesty's Revenue and Customs give the person a notice that states—
(a) that subsection (1) does not apply (in relation to the person) in respect of that provision for that period, or
(b) that subsection (1) does not apply to the person for that period.
(9) The Commissioners may only give a notice under subsection (8) if they consider that it is expedient to give the notice for the purposes of avoiding any loss of tax that would, or may, otherwise result from the application of subsection (1).
(10) For the purposes of subsection (9), and section 170(1)(zb), the question of whether there is or may be a loss of tax is to be determined having regard to the positions of both of the affected persons.
(11) A notice under subsection (8) is referred to in this Chapter as a transfer pricing notice.
(12) See sections 169 to 171 for further provision about the giving of, and effect of, transfer pricing notices.
(1) Section 147(3) and (5) do not apply in calculating for any chargeable period the profits and losses of a potentially advantaged person if that person is a company which meets the condition in subsection (2).
(2) The condition is that—
(a) the company was dormant throughout the pre-qualifying period, and
(b) apart from section 147, the company has continued to be dormant at all times since the end of the pre-qualifying period.
(3) In subsection (2) “the pre-qualifying period” means—
(a) if there is an accounting period of the company that ends on 31 March 2004, that accounting period, or
(b) if there is no such accounting period, the period of 3 months ending with that date.
(4) In this section “dormant” has the meaning given by section 1169 of the Companies Act 2006.
166 Exemption for small and medium-sized enterprises
(1) Section 147(3) and (5) do not apply in calculating for any chargeable period the profits and losses of a potentially advantaged person if that person is a small or medium-sized enterprise for that chargeable period (see section 172).
(2) Exceptions to subsection (1) are provided—
(a) in the case of a small enterprise, by sections 167 and 167A, and
(b) in the case of a medium-sized enterprise, by sections 167 and 168.
167 Small and medium-sized enterprises: exceptions from exemption
(1) Subsections (2) and (3) set out exceptions to section 166(1).
(2) The first exception is if the small or medium-sized enterprise elects for section 166(1) not to apply in relation to the chargeable period.
Any such election is irrevocable.
(3) The second exception is if—
(a) the other affected person, or
(b) a party to a relevant transaction,
is, at the time when the actual provision is or was made or imposed, a resident of a non-qualifying territory (whether or not that person is also a resident of a qualifying territory).
(4) For the purposes of subsection (3)—
(a) a “party to a relevant transaction” is a person who, if the actual provision is or was imposed by means of a series of transactions, is or was a party to one or more of those transactions, and
(b) “qualifying territory” and “non-qualifying territory” are defined in section 173.
(5) In subsection (3) “resident”, in relation to a territory—
(a) means a person who, under the law of that territory, is liable to tax there by reason of the person's domicile, residence or place of management, but
(b) does not include a person who is liable to tax in that territory in respect only of income from sources in that territory or capital situated there.
167A Small enterprises: exception from exemption: transfer pricing notice
(1) Section 166(1) does not apply in relation to any provision made or imposed if—
(a) the potentially advantaged person is a small enterprise for the chargeable period,
(b) the person meets the condition in subsection (2), and
(c) the Commissioners for Her Majesty's Revenue and Customs give that person a notice requiring the person to calculate the profits and losses of that chargeable period in accordance with section 147(3) or (5) in the case of that provision.
(2) A person meets the condition referred to in subsection (1)(b) if—
(a) provision has been made or imposed as between the person and any other person by means of a transaction or series of transactions,
(b) the basic pre-condition in section 147 is met in respect of the provision, and
(c) the transaction, or one or more of the series of transactions, is taken into account in calculating, for the purposes of Part 8A of CTA 2010 (profits arising from the exploitation of patents etc), the relevant IP profits of a trade of a person who is or was a party to the transaction or transactions.
(3) A notice under subsection (1) is referred to in this Chapter as a transfer pricing notice.
168 Medium-sized enterprises: exception from exemption: transfer pricing notice
(1) Section 166(1) does not apply in relation to any provision made or imposed if—
(a) the potentially advantaged person is a medium-sized enterprise for the chargeable period, and
(b) the Commissioners for Her Majesty's Revenue and Customs give that person a notice requiring the person to calculate the profits and losses of that chargeable period in accordance with section 147(3) or (5) in the case of that provision.
(2) A notice under subsection (1) is referred to in this Chapter as a transfer pricing notice.
(1) This section applies to a transfer pricing notice given to a person.
(2) The notice may be given in relation to—
(a) any provision specified, or of a description specified, in the notice, or
(b) every provision in relation to which one or other of the assumptions in section 147(3) and (5) would, apart from section 166(1), be required to be made when calculating the person's profits and losses for tax purposes.
(3) The notice may be given only after a notice of enquiry has been given to the person in relation to the person's tax return for the chargeable period concerned.
(4) The notice must identify the officer of Revenue and Customs to whom any notice of appeal under section 170 is to be given.
(5) In subsection (3) “notice of enquiry” means a notice under—
(a) section 9A or 12AC of TMA 1970, or
(b) paragraph 24 of Schedule 18 to FA 1998.
(1) A person to whom a transfer pricing notice is given may appeal against the decision to give the notice, but only on one of the following grounds—
(za) in the case of a transfer pricing notice given under section 148A(3), that the condition in section 148A(1)(c) is not met,
(zb) in the case of a transfer pricing notice given under section 164A(8), that there would be no loss of tax resulting from—
(i) in the case of a notice under section 164A(8)(a), the application of section 164A(1) in relation to the chargeable period and provision to which the notice relates, or
(ii) in the case of a notice under section 164A(8)(b), the application of section 164A(1) in relation to that period and any qualifying UK to UK provision for which the person is the potentially advantaged person, or
(a) that the condition in section 167A(1)(b) is not met, or
(b) that the condition in section 168(1)(a) is not met.
(1A) A person to whom a transfer pricing notice is given under section 148A(3) may appeal against a decision of the Commissioners for His Majesty's Revenue and Customs to consider the case to which the notice relates analogous to a case that would meet the participation condition only as a result of section 161 (actual provision relates, to any extent, to financing arrangements).
(2) An appeal under this section must be brought by giving written notice of appeal to the officer of Revenue and Customs identified in the notice in accordance with section 169(4).
(3) The notice of appeal must be given before the end of the period of 30 days beginning with the day on which the transfer pricing notice is given.
171 Tax returns where transfer pricing notice given
(1) If a transfer pricing notice is given to a person (“T”), T may amend T's tax return for the purpose of complying with the notice at any time before the end of the period of 90 days beginning with—
(a) the day on which the notice is given, or
(b) if T appeals under section 170 against the decision to give the notice, the day on which the appeal is finally determined or abandoned.
(2) If a transfer pricing notice is given in the case of any tax return, no closure notice may be given in relation to that tax return until—
(a) the end of the period of 90 days specified in subsection (1), or
(b) the earlier amendment of the tax return for the purpose of complying with the notice.
(2A) Subsection (2) does not apply to a partial closure notice which does not relate to any matter to which the transfer pricing notice relates.
(3) So far as relating to any provision made or imposed by or in relation to a person—
(a) who is a small or medium-sized enterprise for a chargeable period,
(b) who does not make an election under section 167(2) for that period, and
(c) who is not excepted from section 166(1) in relation to that provision for that period because of section 167(3),
the tax return required to be made for that period is a return that disregards section 147(3) and (5).
(4) Subsection (3) does not prevent a tax return for a period becoming incorrect if in the case of any provision made or imposed—
(a) a transfer pricing notice is given which has effect in relation to that provision for that period,
(b) the return is not amended in accordance with subsection (1) for the purpose of complying with the notice, and
(c) the return ought to have been so amended.
(5) In this section—
“closure notice” means a notice under—
section 28A or 28B of TMA 1970, or
paragraph 32 of Schedule 18 to FA 1998,
“company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to FA 1998, as read with paragraph 4 of that Schedule, and
“tax return” means—
a return under section 8, 8A or 12AA of TMA 1970, or
a company tax return.
172 Meaning of “small enterprise” and “medium-sized enterprise”
(1) In this Chapter—
(a) “small enterprise” means a small enterprise as defined in the Annex, and
(b) “medium-sized enterprise” means an enterprise which—
(i) falls within the category of micro, small and medium-sized enterprises as defined in the Annex, and
(ii) is not a small enterprise as defined in the Annex.
(2) For the purposes of subsection (1), the Annex has effect with the modifications set out in subsections (4) to (7).
(3) In this section “the Annex” means the Annex to Commission Recommendation 2003/361/EC of 6 May 2003 (concerning the definition of micro, small and medium-sized businesses).
(4) Where any enterprise is in liquidation or administration, the rights of the liquidator or administrator (in that capacity) are to be left out of account when applying Article 3(3)(b) of the Annex in determining for the purposes of this Part whether—
(a) that enterprise, or
(b) any other enterprise (including that of the liquidator or administrator),
is a small or medium-sized enterprise.
(5) Article 3 of the Annex has effect with the omission of paragraph 5 (declaration in good faith where control cannot be determined etc).
(6) The first sentence of Article 4(1) of the Annex has effect as if the data to apply to—
(a) the headcount of staff, and
(b) the financial amounts,
were the data relating to the chargeable period referred to in section 166(1) (instead of the period described in that sentence) and calculated on an annual basis.
(7) Article 4 of the Annex has effect with the omission of the following provisions—
(a) the second sentence of paragraph 1 (data to be taken into account from date of closure of accounts),
(b) paragraph 2 (no change of status unless ceilings exceeded for two consecutive periods), and
(c) paragraph 3 (genuine estimate in case of newly established enterprise).
173 Meaning of “qualifying territory” and “non-qualifying territory”
(1) In section 167(3)—
“non-qualifying territory” means any territory which is not a qualifying territory, and
“qualifying territory” means—
the United Kingdom, or
any territory in relation to which condition A or condition B is met.
(2) Condition A is that—
(a) double taxation arrangements have been made in relation to the territory,
(b) the arrangements include a non-discrimination provision, and
(c) the territory is not designated as a non-qualifying territory for the purposes of this subsection in regulations made by the Treasury.
(3) Condition B is that—
(a) double taxation arrangements have been made in relation to the territory, and
(b) the territory is designated as a qualifying territory for the purposes of this subsection in regulations made by the Treasury.
(4) For the purposes of subsection (2)(b) a “non-discrimination provision”, in relation to any double taxation arrangements, is a provision to the effect that nationals of a state which is a party to those arrangements (a “contracting state”) are not to be subject in any other contracting state to—
(a) any taxation, or
(b) any requirement connected with taxation,
which is other or more burdensome than the taxation and connected requirements to which nationals of that other state in the same circumstances (in particular with respect to residence) are or may be subjected.
(5) In subsection (4) “national”, in relation to a state, includes—
(a) any individual possessing the nationality or citizenship of the state, and
(b) any legal person, partnership or association deriving its status as such from the law in force in that state.
(6) In this section “double taxation arrangements” means arrangements that have effect under section 2(1) (double taxation relief by agreement with territories outside the United Kingdom).
(7) Regulations under this section may only be made if a draft of the statutory instrument containing the regulations has been laid before and approved by a resolution of the House of Commons.
173A Exchange gains and losses arising as a result of qualifying loan relationships and derivative contracts
(1) Neither subsection (3) nor (5) of section 147 applies in relation to exchange gains and losses to the extent they arise, or would arise if either subsection applied, in relation to a qualifying financial instrument of a company.
(2) Accordingly, for the purposes of determining whether actual provision confers a potential advantage on a person, ignore the effect of so much of any exchange gain or loss as arises, or would have arisen, in relation to a qualifying financial instrument.
(3) In this section a qualifying financial instrument of a company means a financial instrument that is, or forms part of, actual provision to the extent—
(a) it is matched with another financial instrument of the company,
(b) it forms part of a currency tax offset arrangement,
(c) an exchange gain or loss arising to the company in relation to the financial instrument would be—
(i) prescribed an exchange gain or loss under regulation 3(1) or (5), 4(1) or (4A) or 5A(1) of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004,
(ii) an excluded amount for the purposes of sections 598(1)(a) and 606(4) of CTA 2009 as a result of regulation 5ZA(1) of those regulations, or
(iii) an excluded amount for the purposes of section 598(1)(a) of CTA 2009 as a result of regulation 7A of those regulations,
(d) the financial instrument gives rise to regulation 7 fair value profits or losses within the meaning of regulation 7 of those regulations, or
(e) the financial instrument is wholly denominated in the reference currency used by the company in relation to the actual provision, or the part of the actual provision, to which the financial instrument relates.
(4) A financial instrument of a company is matched with another financial instrument of the company to the extent that one is intended by the company to act to eliminate or substantially reduce the currency risk of the other.
(5) A financial instrument of a company forms part of a currency tax offset arrangement to the extent that—
(a) the company (“the first company”) has an exchange gain or loss arising in relation to the instrument and that would (ignoring this Part) be brought into account,
(b) that gain or loss is offset by a corresponding exchange loss or gain arising to another company in relation to that financial instrument or another financial instrument and that would (ignoring this Part) be brought into account by that other company, and
(c) the companies intended that the gain or loss referred to in paragraph (a) would be offset by the loss or gain referred to in paragraph (b).
(6) In this section—
“currency risk” means a risk which can be attributed to fluctuations in exchange rates between currencies over a period of time;
“financial instrument” means—
a loan relationship, or
a derivative contract;
“reference currency”, in relation to a company and actual provision or part of actual provision, means the currency by reference to which the profits of the company, so far as they relate to the provision or part, are calculated for corporation tax purposes.
174 Claim by the affected person who is not potentially advantaged etc
(1) Subsection (2) applies if—
(a) only one of the affected persons (in this Chapter called “the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision, and
(b) the other affected person (in this Chapter called “the disadvantaged person”) is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities (see section 216).
(1A) Subsection (2) also applies in any case where—
(a) one of the affected persons is a non-UK resident company with a permanent establishment in the United Kingdom,
(b) the taxable profits of that company are calculated, as a result of section 21 of CTA 2009, as if the arm’s length provision (to some extent) had been made or imposed between the permanent establishment and the other affected person, and
(c) if the actual provision (to the extent corresponding to the arm’s length provision treated as made or imposed between the permanent establishment and the other person) had been made or imposed between the permanent establishment and the other person, that provision—
(i) would confer a potential advantage on the non-UK resident company in relation to United Kingdom taxation, and
(ii) would not confer a potential advantage on the other person in relation to United Kingdom taxation.
(1B) For the purposes of applying that subsection in such a case—
(a) the permanent establishment is to be regarded as “the advantaged person”,
(b) the other affected person is to be regarded as the “disadvantaged person”,
(c) the reference to the arm’s length provision is to that provision to the extent it is treated as having been made or imposed between the permanent establishment and the other affected person for the purpose of calculating the profits of the non-UK resident company, and
(d) the reference to the actual provision is to that provision to the extent that it as corresponds to the arm’s length provision treated as having been made or imposed between the permanent establishment and the other affected person for that purpose.
(2) On the making of a claim by the disadvantaged person—
(a) the profits and losses of the disadvantaged person are to be calculated for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision, and
(b) despite any limit in the Tax Acts on the time within which any adjustment may be made, all such adjustments are to be made in the disadvantaged person's case as may be required to give effect to the assumption that the arm's length provision was made or imposed instead of the actual provision.
(3) Provision about claims under this section is made by—
section 174A (claim not allowed in some cases where the disadvantaged person is within the charge to income tax),
section 175 (application of section 174 where guarantee disallowed),
section 176 (claim cannot be made unless advantaged person has made return on the basis that the arm's length provision applies),
section 177 (when claim may be made or amended), and
sections 181 to 184 (option to make claims in accordance with section 182 in some cases where actual provision relates to a security issued by one of the affected persons).
(4) Subsection (2) has effect subject to—
section 180 (closing trading stock and closing work in progress in a trade),
sections 188 and 189 (effect of claims under this section on double taxation relief), and
Chapter 5 (provision, where liabilities of an affected person under securities issued by that person are guaranteed, for attribution to guarantor of things done by that affected person),
...
.
174A Claims under section 174 where disadvantaged person within charge to income tax
A claim under section 174 may not be made if—
(a) the disadvantaged person is a person (other than a company) within the charge to income tax in respect of profits arising from the relevant activities, and
(b) the advantaged person is a company.
175 Application of section 174 where guarantee disallowed
(1) Subsection (2) applies where—
(a) the actual provision includes provision for the borrowing of an amount,
(b) that amount would not have been lent between independent enterprises but for a guarantee,
(c) such a guarantee was provided by a person with whom the borrower has a participatory relationship, and
(d) the participation condition, in relation to the actual provision for the borrowing—
(i) would not be satisfied but for section 161 (indirect participation), or
(ii) is satisfied as a result of a notice given under section 148A(3), and the Commissioners for His Majesty's Revenue and Customs consider that the case is analogous to a case that would meet the participation condition only as a result of section 161.
(2) For the purposes of section 174(2), the amount is to be treated as if it had been lent to the guarantor on equivalent terms to the terms on which it was lent to the borrower.
(3) Section 154 (interpretation of section 153A and 153B) applies for the purposes of this section as it applies for the purposes of sections 153A and 153B.
176 Claims under section 174: advantaged person must have made return
(1) A claim may not be made under section 174 unless a calculation has been made in the case of the advantaged person on the basis that the arm's length provision was made or imposed instead of the actual provision.
(2) A claim made under section 174 must be consistent with the calculation made on that basis in the case of the advantaged person.
(3) For the purposes of subsections (1) and (2), a calculation is to be taken to have been made in the case of the advantaged person on the basis that the arm's length provision was made or imposed instead of the actual provision if (and only if)—
(a) the calculations made for the purposes of any return by the advantaged person have been made on that basis because of this Part or Chapter 4 of Part 2 of CTA 2009, or
(b) a relevant notice (see section 190) given to the advantaged person takes account of a determination in pursuance of this Part of an amount to be brought into account for tax purposes on that basis.
177 Time for making, or amending, claim under section 174
(1) A claim under section 174 can be made only in the period mentioned in subsection (2) or (3).
(2) If a return has been made by the advantaged person on the basis mentioned in section 176(1), the period is the two years beginning with the day of the making of the return.
(3) If a relevant notice (see section 190) taking account of such a determination as is mentioned in section 176(3)(b) has been given to the advantaged person, the period is the two years beginning with the day on which that notice was given.
(4) Subsection (5) applies if—
(a) a claim under section 174 is made in relation to a return made on the basis mentioned in section 176(1), and
(b) a relevant notice taking account of such a determination as is mentioned in section 176(3)(b) is subsequently given to the advantaged person.
(5) The disadvantaged person is entitled, within the period mentioned in subsection (3), to make any such amendment of the claim as may be appropriate in consequence of the determination contained in the relevant notice.
(6) Subsections (1) and (5) have effect subject to section 186(3) (which provides for the extension of the period for making or amending a claim).
(1) In sections 176 and 177 “return” means—
(a) any return required to be made under TMA 1970 or under Schedule 18 to FA 1998 for income tax or corporation tax purposes, or
(b) any voluntary amendment of a return within paragraph (a).
(2) In subsection (1)(b) “voluntary amendment” means—
(a) an amendment under section 9ZA or 12ABA of TMA 1970 (amendment of personal, trustee or partnership return by taxpayer), or
(b) an amendment under Schedule 18 to FA 1998 other than one made in response to the giving of a relevant notice (see section 190).
179 Compensating payment if advantaged person is controlled foreign company
(1) Subsection (2) applies if—
(a) the actual provision is provision made or imposed in relation to a CFC,
(b) for the purpose of determining the CFC's assumed taxable total profits for an accounting period, the CFC's profits and losses are to be calculated in accordance with section 147(3) or (5) in the case of that provision,
(c) in relation to the accounting period, sums are charged on chargeable companies at step 5 in section 371BC(1), and
(d) in consequence of the application of section 147(3) or (5) as mentioned in paragraph (b), the total of those sums is more than it would otherwise be.
(2) Sections 174 to 178 have effect as if the CFC were a person on whom a potential advantage in relation to United Kingdom taxation were conferred by the actual provision.
(3) In applying sections 174 to 178 in a case in which they apply because of subsection (2)—
(a) references to the advantaged person in sections 176(3)(a) and (b) and 177(2), (3) and (4)(b) include a reference to any of the chargeable companies on which a sum is charged, and
(b) references to corporation tax include a reference to the CFC charge.
(4) In this section terms which are defined in Part 9A have the same meaning as they have in that Part.
(5) For the purposes of subsections (1)(c) and (d) and (3)(a) assume that any claims made under Chapter 9 of Part 9A for the accounting period were not made.
180 Application of section 174(2)(a) in relation to transfers of trading stock etc
(1) Section 174(2)(a) does not affect the credits to be brought into account by the disadvantaged person in respect of—
(a) closing trading stock, or
(b) closing work in progress in a trade,
for accounting periods ending on or after the day given by subsection (2).
(2) That day is the last day of the accounting period of the advantaged person in which the actual provision was made or imposed.
(3) For the purposes of this section “trading stock”, in relation to any trade, has the meaning given by—
(a) section 174 of ITTOIA 2005, or
(b) section 163 of CTA 2009.
181 Section 182 applies to claims where actual provision relates to borrowing
(1) Subsection (2) applies if—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) the actual provision is provision in relation to borrowing.
(2) A claim under section 174 may be made in accordance with section 182.
(3) For the purposes of this Part, a “section 182 claim” is a claim under section 174 made in accordance with section 182.
(4) For the purposes of this section “borrowing” has the meaning it has in sections 153A and 153B (see section 154).
(1) A section 182 claim may be made by—
(a) the disadvantaged person, or
(b) the advantaged person.
(2) A section 182 claim made by the advantaged person is to be taken to be made on behalf of the disadvantaged person.
(3) A section 182 claim may be made before or after a calculation within section 176(1) has been made.
(4) A section 182 claim must be made either—
(a) at any time before the end of the period mentioned in section 177(2), or
(b) within the period mentioned in section 177(3).
(5) Subsection (4) has effect subject to section 186(3) (which provides for the extension of the period for making a claim).