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Ask an expert: Transfer pricing and distant relatives

Question

My client is a medium-sized UK company which has taken a loan from a Jersey company. The controlling shareholder of the UK company and the controlling shareholder of the Jersey company are distantly related being second cousins (their grandmothers are sisters). Do I need to be concerned about transfer pricing and will the interest be fully deductible for UK corporation tax purposes?

Answer

Transfer pricing

The UK’s transfer pricing provisions contained in TIOPA 2010 Part 4 require UK companies to adopt arm’s length pricing terms in computing their taxable profits and losses where a transaction (labelled ‘provision’ in the legislation) takes place between related parties. Such an advantage might be a higher deduction from taxable profits or lower taxable income than would have applied...

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