Taxation (International and Other Provisions) Act 2010 section 196

Balancing payments between affected persons: no charge to, or relief from, tax

Section 196 ensures that balancing payments made between connected parties, where transfer pricing adjustments apply, are not subject to tax or treated as distributions, provided certain qualifying conditions are met and the payments do not exceed the available compensating adjustment.

• Where all qualifying conditions in section 195 are met, balancing payments are ignored for tax purposes to the extent they do not exceed the available compensating adjustment
• Qualifying balancing payments are excluded from the calculation of profits or losses for both income tax and corporation tax, and are not treated as distributions under the Corporation Tax Acts
• The available compensating adjustment is the difference between the disadvantaged person's tax profits or losses calculated on the actual provision and those calculated as if a compensating adjustment claim had been made under section 174
• For the purposes of this calculation, profits are treated as a positive amount and losses as a negative amount