Taxation (International and Other Provisions) Act 2010 section 151

"Arm's length provision"

Section 151 defines what is meant by "arm's length provision" for the purposes of the transfer pricing rules, including cases where a transaction would not have taken place at all between independent parties.

• The term "arm's length provision" takes its meaning from section 147(1), which sets out the basic transfer pricing rule requiring tax calculations to be based on what independent enterprises would have agreed.
• The definition covers not only cases where the terms of a transaction differ from what independent parties would have agreed, but also cases where the transaction itself would never have occurred between independent parties.
• Where a transaction exists between two connected persons but would simply not have happened between independent enterprises, the transfer pricing rules still apply to adjust the tax position.
• All references to the arm's length provision throughout Part 4 of the Act must be read broadly enough to encompass both scenarios — different terms and non-existent transactions.