Income Tax (Trading and Other Income) Act 2005 section 172F

Transfer pricing rules to take precedence

Section 172F establishes that when trading stock is disposed of or acquired outside the normal course of trade between connected parties, the transfer pricing rules take priority over the market value rules that would otherwise apply, but provides a top-up mechanism where market value exceeds the transfer pricing amount.

• Where the consideration for a disposal or acquisition of trading stock falls within the transfer pricing rules, those rules override the normal market value substitution rules in sections 172D and 172E
• If the market value of the stock exceeds the amount determined under transfer pricing, the difference must also be brought into account when calculating trade profits
• The consideration is treated as falling within the transfer pricing rules even where no actual adjustment is required, provided certain conditions are met and the participation condition is satisfied
• Specific exceptions exist for exchange gains or losses on loan relationships and derivative contracts, and for matters dealt with under capital allowances or chargeable gains rules