Budget 2016: Update to transfer pricing guidelines

A transfer price is the price charged in a transaction between 2 parties. The transfer pricing legislation requires that for income tax and corporation tax purposes, the prices charged in transactions between connected parties are the same as those that would be charged if the parties were not connected. In October 2015, the Organisation for Economic Co-operation and Development (OECD) published new Transfer Pricing Guidelines as part of the Base Erosion and Profit-Shifting (BEPS) project.

Legislation will be introduced to amend the definition of “transfer pricing guidelines” within the current legislation to incorporate the revisions agreed to in the OECD Guidelines. The changes will take effect in relation to accounting periods beginning on or after 1 April 2016 (for companies) and the tax year 2016/17 for income tax.

The measure will ensure that the UK legislation reflects internationally agreed standards for the application of the arm’s length principle for transfer pricing purposes to provide certainty for businesses and to minimise potential for double taxation.