Corporation Tax Act 2009 section 1179DU

Excluded expenditure: non-arm's-length dealings with connected parties

Section 1179DU prevents production companies from inflating their qualifying expenditure by overpaying connected parties, by treating the excess profit element of such payments as excluded expenditure unless the transaction is at arm's length.

• Where a production company pays a connected party for goods or services, any amount exceeding the connected party's own costs is treated as excluded expenditure (connected party profit) and cannot qualify for relief.
• This exclusion does not apply if the payment is no more than what would have been agreed between independent parties dealing at arm's length, as defined by Part 4 of the Taxation (International and Other Provisions) Act 2010.
• Where the supply passes through a chain of transactions — either between connected parties or under a single scheme or arrangement — the connected party profit is measured against the costs of the first supplier in the chain, and the arm's length test applies to every transaction in that chain.
• The term "payment" is broadly defined to include any transfer of value, not just cash payments.