UK: Proposed secondary adjustment rule | KPMG | BE

UK: Proposed secondary adjustment rule, for transfer pricing provisions

UK: Proposed secondary adjustment rule

The UK government is examining whether to introduce a secondary adjustment rule into the UK’s domestic transfer pricing provisions. As part of the government’s efforts to make the UK tax system competitive, while also addressing tax avoidance—as set out in the 2016 business tax roadmap and the OECD’s base erosion and profit shifting (BEPS) project—a consultation has been opened concerning a proposed secondary adjustment rule.


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The UK’s transfer pricing law currently requires intra-group transactions to be priced on an “arm’s length” basis. Transfer pricing adjustments are made via a primary adjustment to the price used for tax purposes. However, because this price only has implications for tax purposes, the cash benefit from non-arm’s length pricing can accumulate in another jurisdiction. To counter this result, a “secondary adjustment” can be made to align the economic situation with the transfer pricing situation, by applying a tax charge to the accumulated cash benefit. Secondary adjustment rules are already used in other jurisdictions—including the United States, Canada, and France.

The UK consultation covers not only whether to introduce a secondary adjustment rule, but how to design such a rule. The deadline for responses is 18 August 2016.


Read a June 2016 report prepared by the KPMG member firm in the UK: Consultation: Introducing secondary adjustments into UK transfer pricing legislation

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