Income Tax (Trading and Other Income) Act 2005 section 106C

Amounts not reflecting commercial transactions

Section 106C requires that where a transaction connected with a trade does not reflect a proper arm's length commercial price, the amount used in calculating trade profits must be adjusted to a just and reasonable figure.

• Where a person carries out any act in relation to their trade (the "relevant act"), and the amount recorded for profit purposes differs from what would have been recorded had the transaction been conducted at arm's length in the open market, an adjustment may be required.
• The section only applies where the difference between the actual amount and the arm's length amount has the effect of reducing the trade profits below what they would otherwise have been.
• When the section applies, the amount to be brought into account for calculating trade profits must be replaced with an amount that is just and reasonable in all the circumstances.
• This is an anti-avoidance measure aimed at ensuring that transactions which do not reflect genuine commercial terms cannot be used to artificially reduce taxable trading profits.