Corporation Tax Act 2009 section 161

Transfer pricing rules to take precedence

Section 161 establishes that the transfer pricing rules take priority over the market value rules for trading stock disposals and acquisitions that fall outside the normal course of trade, and provides a top-up mechanism where the market value exceeds the transfer pricing amount.

• Where a disposal or acquisition of trading stock falls within the transfer pricing rules, the normal market value substitution rules for non-trade transactions in sections 159 and 160 are switched off.
• If the market value of the stock exceeds the amount determined under the transfer pricing rules, the difference must be added to trading profits as a top-up amount.
• The transfer pricing rules also take precedence where the transaction falls within the scope of those rules but is exempt from adjustment, for example due to exceptions for capital allowances, chargeable gains, or certain exchange gains and losses.
• The participation condition (broadly, a connected party or control relationship between the parties) must be met for the transfer pricing framework to override the market value rules.