Taxation (International and Other Provisions) Act 2010 section 155

"Potential advantage" in relation to United Kingdom taxation

Section 155 defines what it means for a transaction between connected parties to confer a "potential advantage" in relation to UK taxation, which is a key concept in applying the transfer pricing rules.

• A potential advantage arises where the actual terms of a transaction, compared to arm's length terms, would result in lower taxable profits or higher allowable losses for a person.
• The reduction in profits can be down to nil, and losses can be created where none would otherwise exist, for the advantage to apply.
• When assessing whether a non-UK resident has a potential advantage, certain types of income that are outside the scope of UK income tax (known as "disregarded income") are left out of the calculation.
• The corporate interest restriction rules and the rule treating excessive interest as a distribution are both ignored when determining whether a potential advantage exists.