Transfer pricing for colluding investors

Finance Act 2005 introduces a number of amendments to transfer pricing and loan relationship legislation in the UK. In summary, the main amendments are as follows:

1. Investors who collectively control a business and who have acted together in the financing arrangements of the business may now be affected by UK transfer pricing legislation irrespective of their disaggregated share of control; the legislation may also apply in situations where financing arrangements are entered into and a control relationship comes into existence up to a six months after the fiannce is made.
   
2. A restriction (with some exceptions) is to be placed on corporation tax deductions for late paid interest.

HM Revenue & Customs (HMRC) have very recently issued guidance in relation to the changes; however, the guidance is not final and a number of revisions have been made. That said, a useful discussion is provided indicating the transactions that are on HMRC’s radar within the context of the new legislation. This article considers the potential impact of the guidance on investors and the investment industry.

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Article by Shiv Mahalingham, a Tax Consultant in the Transfer Pricing Group at Ernst & Young LLP. This article appeared in the September 2005 issue of Tax Adviser.

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