Corporation Tax Act 2009 section 1179FM

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

Section 1179FM prevents development companies from claiming audio-visual expenditure credit on inflated costs arising from transactions with connected parties that exceed arm's length prices.

• Expenditure paid to a connected party is excluded to the extent it exceeds that party's own costs of supplying the goods or services — i.e. the connected party's profit element is stripped out.
• The exclusion does not apply if the payment would have been the same had the transaction been conducted at arm's length (as defined in the transfer pricing rules).
• Where a supply passes through a chain of transactions involving connected parties or a single scheme, the profit element is measured against the costs of the first supplier in the chain, and every transaction in the chain must satisfy the arm's length test.
• "Payment" is broadly defined to include any transfer of value, not just cash payments.

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