Transfer pricing

In this lesson

1. 0:00 Transfer pricing: anti-avoidance rules explained
2. 1:22 When transfer pricing rules apply to companies
3. 2:18 Restating transactions at arm's length prices
4. 3:14 Spotting transfer pricing issues in exams
5. 3:29 Innovation PLC worked example and solution

About this lesson

You'll discover when these rules apply, how to identify transfer pricing issues in exam scenarios, and how to restate profits correctly for corporation tax purposes. Transfer pricing is an anti-avoidance rule that stops connected companies from using artificially low or high prices to shift profits into lower-tax jurisdictions. When a UK company sells goods or services to a connected overseas company at below market value, it reduces UK taxable profit—and the rules require you to reinstate that transaction at the genuine market price. Similarly, if a company receives loans at below-market interest rates or buys services at inflated prices, you must adjust to arm's length pricing for tax purposes. These rules generally apply only to large companies, but there's an important exception: if either company is resident in a non-qualifying territory (a country with no double taxation agreement with the UK, or one without a non-discrimination clause), the rules apply regardless of company size. The company gaining the tax advantage must self-assess and restate its profits using the correct market value. By mastering transfer pricing, you'll be able to spot these issues in case studies and exam questions, then correctly calculate the taxable profit adjustment required.

Duration: 5m